UNITED ARAB EMIRATES

 

Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital

Notification G.S.R. No. 710(E), dated 18th November, 1993

 

Whereas the annexed agreement between the Government of the United Arab Emirates and the Government of the Republic of India for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital has entered into force on the 22nd September, 1993, after the notification by both the Contracting States to each other of the completion of the proceedings required by laws for bringing into force of the said agreement in accordance with paragraph 1 of Article 30 of the said agreement:

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), and section 44A of the Wealth-tax Act, 1957 (27 of 1957), the Central Government hereby directs that all the provisions of the said agreement shall be given effect to in the Union of India.

 

ANNEXURE

 

An Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double Taxation and the prevention of fiscal evasion with respect to taxes on income and on capital

 

The Government of the Republic of India and the Government of the United Arab Emirates--

Desiring to promote mutual economic relations by concluding an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital,

 

Have agreed as follows:

 

ARTICLE 1: Personal Scope.--This agreement shall apply to persons who are residents of one or both of the Contracting States.

 

ARTICLE 2: Taxes Covered.--1. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital including taxes on gains from alienation of movable or immovable property as well as on capital appreciation.

2. The existing taxes to which the agreement shall apply are :

 

(a)        In United Arab Emirates:

 

(i)         income-tax;

            (ii)        corporation tax;

            (iii)       wealth-tax

 

(hereinafter referred to as "U.A.E. tax");

 

(b)        In India:

 

(i)         the income-tax including any surcharge thereon;

            (ii)        the surtax; and

            (iii)       the wealth-tax

 

(hereinafter referred to as "Indian tax").

 

3. This agreement shall also apply to any identical or substantially similar taxes on income or capital which are imposed at Federal or State level by either Contracting State in addition to, or in place of, the taxes referred to in paragraph 2 of this Article. The competent authorities of the Contracting State shall notify each other of any substantial changes which are made in their respective taxation laws.

 

ARTICLE 3: General Definitions.--1. In this agreement, unless the context otherwise requires:

 

(a)        the term "India" means the territory of India and includes the territorial sea and air space above it, as well as any other maritime zone in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with international law;

 

(b)        the term "U.A.E." means the United Arab Emirates and when used in a geographical sense, means all the territory of the United Arab Emirates including its territorial sea in which the U.A.E. laws relating to taxation apply and any area beyond its territorial sea within which the United Arab Emirates has sovereign rights of exploration for an exploitation of resources of the seabed and its sub-soil and superjacent water resources in accordance with international law;

 

(c)        the terms "a Contracting State" and "the other Contracting State" mean U.A.E. or India as the context requires;

 

(d)        the term "tax" means "Indian tax" or "U.A.E. tax" as the context requires, but shall not include any amount which is  payable in respect of any default or omission in relation to the taxes to which this agreement applies or which represents a penalty imposed relating to those taxes;

 

(e)        the term "person" includes an individual, a company, and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States;

 

(f)        the term "company" means any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective Contracting States;

 

(g)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

 

(h)        the term "national" means:

 

(i)         in the case of U.A.E. all individuals possessing the nationality of U.A.E. in accordance with U.A.E. laws and any legal person, partnership and other body corporate deriving its status as such from the U.A.E. laws;

(ii)        in the case of India, any individual possessing the nationality of India and any legal person, partnership, or association deriving its status as such from the laws in force in India;

 

(i)         the term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State except when the ship or aircraft is operated solely between places in the other Contracting State;

 

(j)         the term "competent authority" means:

 

(i)         in the case of U.A.E., the Minister of Finance and Industry or his authorised representative; and

(ii)        in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorised representative.

 

2. As regards the application of the agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the taxes to which the  agreement applies.

 

ARTICLE 4: Resident.--1. For the purposes of this agreement, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature.

 

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

 

(a)        he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both States or in either of them, he shall be deemed to be a resident of the State of which he is a national;

 

(d)        if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1, a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

 

ARTICLE 5: Permanent Establishment.--1. For the purposes of this agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" includes especially:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;

            (g)        a farm or plantation;

(h)        a building site or construction or assembly project or supervisory activities in connection therewith, but only where such site, project or activity continues for a period of more than 9 months;

(i)         the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personal in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating to more than 9 months within any twelve-month period.

 

3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

 

(a)        the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

 

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

 

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

 

(d)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

 

(e)        the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.

 

4. Notwithstanding the provisions of paragraph 1 and 2, where a person--other than an agent of independent status to whom paragraph 5 applies--is acting on behalf of an enterprise and has, and habitually exercises in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to the purchase of goods or merchandise for the enterprise.

 

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

 

ARTICLE 6: Income from Immovable Property.--1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

 

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. the term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships, boats and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting, or issue in any other from of immovable property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

 

ARTICLE 7: Business Profits.--1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

 

4. In so far as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the methods of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

 

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by the permanent establishment of goods or merchandise for the enterprise.

 

6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

 

7. Where profits include items of income which are dealt with separately in other Articles of this agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

 

ARTICLE 8: Shipping.--1. Profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships in international traffic shall be taxable only in that State.

 

2. For the purposes of this Article, profits from the operation of ships in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea of passengers, mail, livestock or goods and shall include:

 

(a)        the charter or rental of ships incidental to such transportation;

 

(b)        the rental of containers and related equipments used in connection with the operation of ships in international traffic;

 

(c)        the gains derived from the alienation of ships, containers and related equipments owned and operated by the enterprise in international traffic.

 

3. For the purposes of this Article, interest on funds connected with the operation of ships in international traffic shall be regarded as profits derived from the operation of such ships and the provisions of Article 11 shall not apply in relation to such interest.

 

4. The provisions of paragraphs 1, 2 and 3 shall apply to profits from the participation in a pool, a joint business or an international operating agency.

 

ARTICLE 9: Associated Enterprises.--Where:

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

 

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

ARTICLE 10: Dividends.--1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed:

 

(a)        5 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least ten per cent of the shares of the company paying the dividend;

 

(b)        15 per cent of the gross amount of the dividends in all other cases.

 

3. The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

 

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

 

ARTICLE 11: Interest.--1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such interest may be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed:

 

(a)        5 per cent of the gross amount of the interest, if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution; and

 

(b)        12.5 per cent of the gross amount of the interest in all other cases.

 

3. Notwithstanding the provisions of paragraph 2 interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by:

 

(i)         the Government, a political sub-division or a local authority of the other Contracting State; or

(ii)        the Central Bank of the other Contracting State.

 

4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

 

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

6. Interest shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this agreement.

 

ARTICLE 12: Royalties.--1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 10 per cent of the gross amount of such royalties.

 

3. The term "royalties" as used in this Article means payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematography films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience but do not include royalties or other payments in respect of the operation of mines or quarries or exploitation of petroleum or other natural resources.

 

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this agreement.

 

ARTICLE 13: Capital Gains.--1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph 2 of Article 6 and situated in the other Contracting State may be taxed in that other State.

 

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base may be taxed in that other State.

 

3. Gains from the alienation of any property other than that mentioned in paragraphs 1 and 2 shall be taxable only in the Contracting State of which the alienator is a resident.

 

ARTICLE 14: Independent Personal Services.--1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State, except in the following circumstances when such income may also be taxed in the other Contracting State:

 

(a)        if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or

 

(b)        if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant "previous year" or 'year of income", as the case may be; in that case only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

 

2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

 

ARTICLE 15: Dependent Personal Services.--1. Subject to the provisions of Articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, if:

 

(a)        the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant "previous year" or "year of income", as the case may be; and

 

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

 

(c)        the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

 

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.

 

ARTICLE 16: Directors' Fees.--Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

ARTICLE 17: Income Earned by Entertainers and Athletes.--1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer such as a theatre, motion picture, radio or television artiste or a musician or as an athlete, from his personal activities as such exercised in the other Contracting State may be taxed in that other State.

 

2. Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or an athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

 

3. Notwithstanding the provisions of paragraph 1, income derived by an entertainer or an athlete who is a resident of a Contracting State from his personal activities as such exercised in the other Contracting State, shall be taxable only in the first-mentioned Contracting State, if the activities in the other Contracting State are supported wholly or substantially from the public funds of the first-mentioned Contracting State, including any of its political sub-divisions or local authorities.

 

4. Notwithstanding the provisions of paragraph 2 and Articles 7, 14 and 15, where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such in a Contracting State accrues not to the entertainer or athlete  himself but to another person, that income shall be taxable only in the other Contracting State, if that other person is supported wholly or substantially from the public funds of that other State, including any of its political sub-divisions or local authorities.

 

ARTICLE 18: Remuneration and Pensions in Respect of Government Service.--1. (a) Remuneration, other than a pension, paid by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that State who:

 

(i)         is a national of that State; or

            (ii)        did not become a resident of that State solely for the purpose of rendering the services.

 

2. (a) Any pension paid by, or out of funds created by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

(b) However, such pension shall be taxable only in the other Contracting State, if the individual is a resident of, and a national of that other State.

 

3. The provisions of Articles 15, 16 and 17 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political sub-division or a local authority thereof.

 

ARTICLE 19: Non-Government Pensions and Annuities.--1. Any pension, other than a pension referred to in Article 18, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned Contracting State.

 

2. The term "pension" means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.

 

3. The term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

 

ARTICLE 20: Students, Trainees and Apprentices.--1. An individual who is a resident of a Contracting State and who is temporarily present in the other Contracting State solely as a student at a recognised university, college, school or other educational institution in that other Contracting State or as a business or technical apprentice therein, for a period not exceeding six years from the date of his first arrival in that other Contracting State in connection with that visit, shall be exempt from tax in that other Contracting State on--

 

(a)        all remittances from the first-mentioned Contracting State for the purposes of his maintenance, education or training; and

 

(b)        any remuneration (not exceeding 20,000 Indian rupees or its equivalent sum in U.A.E. currency per annum) for personal services rendered in that other Contracting State with a view to supplementing the resources available to him for such purposes.

 

2. An individual who is a resident of a Contracting State and who is temporarily present in the other Contracting State for the purpose of study, research or training solely as a recipient of a grant, allowance or award from the Government of either of the Contracting States or from a scientific, educational, religious or charitable organisation or under a technical assistance programme entered into by the Government of either of the Contracting States for a period not exceeding three years from the  date of his first arrival in that other Contracting State in connection with that visit shall be exempt from tax in that other Contracting State on--

 

(a)        the amount of such grant, allowance or award;

 

(b)        all remittances from the first-mentioned Contracting State for the purposes of his maintenance, education or training; and

 

(c)        any remuneration (not exceeding 20,000 Indian rupees or its equivalent sum in U.A.E. currency per annum) in respect of services in that other Contracting State if the services are performed in connection with his study, research, training or are incidental thereto.

 

3. An individual who is a resident of a Contracting State and who is temporarily present in the other Contracting State solely as an employee of, or under contract with, an enterprise of the first-mentioned Contracting State solely for the purpose of acquiring technical, professional or business experience from a person other than such enterprise, for a period not exceeding twelve months from the date of his first arrival in that other Contracting State in connection with that visit shall be exempt from tax in that other Contracting State on--

 

(a)        all remittances from the first-mentioned Contracting State for the purposes of his maintenance, education or training; and

 

(b)        any remuneration, so far as it is not in excess of 20,000 Indian rupees or its equivalent sum in U.A.E. currency per annum, for personal services rendered in that other Contracting State, provided such services are in connection with the acquisition of such experience.

 

4. An individual who is a resident of a Contracting State and who is temporarily present in the other Contracting State under arrangements with the Government of that other Contracting State solely for the purpose of training or study shall be exempt from tax in that other Contracting State in respect of remuneration received by him on account of such training or study.

 

5. For the purposes of this Article and Article 21,

 

(a)        (i)         an individual shall be deemed to be a resident of India if he is resident in India in the "previous year" in which he visits U.A.E. or in the immediately preceding "previous year";

            (ii)        an individual shall be deemed to be a resident of U.A.E. if, immediately before visiting India, he is a resident of U.A.E.;

 

(b)        the term "recognised" in relation to a university, college, school or other educational institution in a Contracting State shall, in the case of doubt, be determined by the competent authority of that State.

 

ARTICLE 21: Professors, Teachers and Researchers.--1. An individual who is a resident of a Contracting State immediately before making a visit to the other Contracting State, and who, at the invitation of any university, college, school or other similar educational institution, which is recognised by the Government, a political sub-division or a local or statutory authority of that State, visits that other Contracting State for a period not exceeding two years solely for the purpose of teaching or research or both at such educational institution, shall be exempt from tax in that other Contracting State on his remuneration for such teaching or research.

 

2. This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons.

 

ARTICLE 22: Other Income.--1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this agreement, shall be taxable only in that Contracting State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

ARTICLE 23: Capital.--1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that State.

 

2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

 

3. Capital represented by ships operated in international traffic and by movable property pertaining to the operation of such ships, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

 

ARTICLE 24: Income of Government and Institutions.--1. The Government of one of the Contracting  States shall be exempt from tax in the other Contracting State in respect of any income derived by such Government from that other Contracting State.

 

2. For the purposes of paragraph 1 of this Article, the term "Government"--

 

(a)        in the case of India, means the Government of India, and shall include:

 

(i)         the political sub-divisions, the local authorities, the local administrations, and the local Governments;

            (ii)        the Reserve Bank of India;

(iii)       any such institution or body as may be agreed from time to time between the two Contracting States;

 

(b)        in the case of U.A.E. means the Government of the United Arab Emirates, and shall include:

 

(i)         the political sub-divisions, the local authorities, the local administrations and the local Governments;

(ii)        the Central Bank of the United Arab Emirates, Abu Dhabi Investment Authority and Abu Dhabi Fund for Economic Development;

(iii)       any such institution or body as may be agreed from time to time between the two Contracting States.

 

ARTICLE 25: Elimination of Double Taxation.--1. The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except where express provisions to the contrary are made in this agreement.

 

2. Where a resident of India derives income or owns capital which, in accordance with the provisions of this agreement, may be taxed in U.A.E., India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in U.A.E. whether directly or by deduction; and as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in U.A.E. Such deduction in either case shall not, however, exceed that part of the income-tax or capital-tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in U.A.E. Further, when such resident is a company by which surtax is payable in India, the deduction in respect of income-tax paid in U.A.E. shall be allowed in the first instance from income-tax payable by the company in India and as to the balance, if any, from the surtax payable by it in India.

 

3. Subject to the laws of the U.A.E. where a resident of the U.A.E. derives income which in accordance with the provisions of this agreement may be taxed in India, the U.A.E. shall allow as a deduction from the tax on income of that person an amount equal to the tax on income paid in India. Such deduction shall not, however, exceed that part of income-tax as computed before the deduction is given, which is attributable to the income which may be taxed in the U.A.E.

 

4. For the purpose of paragraph 3, the term "tax paid in India" shall be deemed to include the amount of Indian tax which would have been paid if the Indian tax had not been exempted or reduced in accordance with the special incentive measures under the provisions of the Income-tax Act, 1961, which are designed to promote economic development in India, effective on the date of signature of this agreement, or which may be introduced in the future in modification of, or in addition to, the existing provisions for promoting economic development in India, and such other incentive measures which may be  agreed upon from time to time by the Contracting States.

 

5. Where, in accordance with any provision of the agreement, income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may, nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

 

ARTICLE 26: Non-Discrimination.--1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected.

 

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other Contracting State than the taxation levied on enterprises of that Contracting State carrying on the same activities in the same circumstances or under the same conditions.

 

3. The provisions of this Article shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected in the same circumstances and under the same conditions.

 

5. In this Article, the term "taxation" means taxes which are the subject of this agreement.

 

ARTICLE 27: Mutual Agreement Procedure.--1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this agreement, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident. This case must be presented within two years of the date of receipt of notice of the action which gives rise to taxation not in accordance with the agreement.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to avoidance of taxation not in accordance with the agreement. Any agreement reached shall be implemented notwithstanding any time limits in the national laws of the Contracting States.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the agreement. When it seems advisable in order to reach agreement to have an oral exchange of opinion, such exchange may take place through a commission consisting of representatives of the competent authorities of the Contracting States. They may also consult together for the elimination of double taxation in cases not provided for in the agreement.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of applying this agreement.

 

ARTICLE 28: Exchange of Information.--1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of the agreement or for the prevention or detection of evasion of taxes which are the subject of this agreement. Any information so exchanged shall be treated as secret but may be disclosed only to persons (including a court or administrative body) concerned with the assessment, collection, enforcement, investigation or prosecution in respect of the taxes which are the subject of this agreement, or to persons with respect to whom the information relates.

 

2. The exchange of information may also be on request with reference to particular cases.

 

3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

 

(a)        to carry out administrative measures at variance with the laws or administrative practice of that or of the other Contracting State;

 

(b)        to supply information or documents which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

 

(c)        to supply information of documents which would disclose any trade, business, industrial, commercial or professional secret or trade process or information the disclosure of which would be contrary to public policy (order public).

 

ARTICLE 29: Diplomatic and Consular Activities.--Nothing in this agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

 

ARTICLE 30: Entry into Force.--1. Each of the Contracting States shall notify to the other the completion of the proceedings required by its law for the bringing into force of this agreement. The agreement shall enter into force on the date of the later of these notifications and shall thereupon have effect--

 

(a)        in the United Arab Emirates:

 

in respect of income derived on or after the 1st January next following the calendar year in which the agreement enters into force and in respect of capital which is held at the expiry of the calendar year next following that in which the agreement enters into force or subsequent years;

 

(b)        in India:

 

in respect of income arising in any "previous year" beginning on or after 1st April next following the calendar year in which the agreement enters into force and in respect of capital which is held at the expiry of any "previous year" beginning on or after 1st April next following the calendar year in which the agreement enters into force.

 

ARTICLE 31: Termination.--This agreement shall remain in force indefinitely, but either of the Contracting States may, on or before 30th June in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give to the other Contracting State, through diplomatic channels, written notice of termination. In such event, the agreement shall cease to have effect--

 

(a)        in the United Arab Emirates:

 

in respect of income derived on or after 1st January next following the calendar year in which the notice of termination is given and in respect of capital which is held at the expiry of the calendar year next following that in which the notice of termination is given or subsequent years;

 

(b)        in India:

 

in respect of income arising in any "previous year" beginning on or after 1st April next following the calendar year in which the notice of termination is given and in respect of capital which is held at the expiry of any "previous year" beginning on or after 1st April next following the calendar year in which the notice of termination is given.

 

In witness whereof, the undersigned, being duly authorised thereto, have signed this agreement.

 

Done in two originals at New Delhi on this Wednesday, 29th day of April, One Thousand Nine Hundred and Ninety-Two corresponding to the 27th day of Shawwal 1412H in the Hindi, Arabic and English languages, all texts being equally authentic. In case of divergence amongst the texts, the English text shall be the operative one.

 

For the Government of the Republic of India          For the Government of the United Arab Emirates

(Sd.) Dr. Manmohan Singh, Minister of Finance.                (Sd.) Hamdan Bin Rashid Al Maktoum, Minister of Finance and Industry

 

PROTOCOL

 

At the signing today of the agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income and on capital, the undersigned have agreed upon the following provisions which shall form an integral part of this agreement:

 

(i)         Subject to the provisions of Article 5, nothing in this agreement shall affect the right of the Government of the United Arab Emirates, its political sub-divisions, local authorities or local Governments to apply its own laws related to the taxation of income derived from the petroleum and natural resources; such activities will be taxed according to the laws of the United Arab Emirates;

 

(ii)        Notwithstanding the provisions of Article 6 and Article 23, the residential property owned by a national of a Contracting State and occupied for self-residence in the other Contracting State shall be exempt in the other Contracting State from the taxes covered by this agreement.

 

In witness whereof, the undersigned, being duly authorised thereto, have signed this Protocol.

 

Done in two originals at New Delhi on this Wednesday, 29th day of April, One Thousand Nine Hundred and Ninety-Two corresponding to the 27th day of Shawwal 1412H in the Hindi, Arabic and English languages, all texts being equally authentic. In case of divergence amongst the texts, the English text shall be the operative one.

 

For the Government of the Republic of India

 

For the Government of the United

Arab Emirates

 

(Sd.) Dr. Manmohan Singh, Minister of Finance                            (Sd.) Hamdan Bin Rashid AlMaktoum, Minister of Finance and Industry.

(Sd.) V. B. Srinivasan,

Joint Secretary to the Government of India.

 

 

 

U.A.E.

 

Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double taxation of income derived from international air transport

Notification No. 8490 [F. No. 501/1/88-FTD], dated 8 November, 1989

 

G.S.R. 969(E).--Whereas the annexed agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the avoidance of double taxation of income derived from international air transport will enter into force on December 1, 1989, on the notification by both the Contracting States to each other of the completion of the procedures required by their respective laws, as required by Article 6 of the said agreement;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India.

 

ANNEXURE

 

The Government of the Republic of India and the Government of the United Arab Emirates,

 

Desiring to conclude an agreement for the avoidance of double taxation of income derived from international air transport,

 

Have agreed as follows:

 

ARTICLE 1: Taxes covered.--1. The taxes to which this Agreement shall apply are:

 

(a)        In the case of the United Arab Emirates, the income-tax as imposed by the Federal Government of the United Arab Emirates (hereinafter referred to as "United Arab Emirates tax").

(b)        In the case of India:

 

(i)         the income-tax including any surcharge thereon; and

            (ii)        the surtax (hereinafter referred to as "Indian tax").

 

2. This Agreement shall also apply to any identical or substantially similar taxes on income which are imposed at federal or state level by either Contracting State in addition to, or in place of, the taxes referred to in paragraph 1 of this article. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.

 

ARTICLE 2: Definitions.--1. For the purpose of this Agreement, unless the context otherwise requires.--

 

(a)        the terms "a Contracting State" and "the other Contracting State" mean the United Arab Emirates or India as the context requires;

            (b)        the term "tax" means United Arab Emirates tax or Indian tax as the context requires;

(c)        the term "enterprise of India" means Air India and Indian Airlines and any other enterprises designated by the Government of India;

(d)        the term "enterprise of the United Arab Emirates" means Gulf Air and Emirates Airlines and any other enterprises designated by the Government of the United Arab Emirates;

(e)        the term "international traffic" means any transport by an aircraft operated by an enterprise of a Contracting State, except when the aircraft is operated solely between places in the other Contracting State;

(f)        the expression "operation of aircraft" means business of carriage by air of passengers, livestock, goods or mail carried on by the owners or lessees or charterers of aircraft including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft and any other activity directly connected with such transportation; and

(g)        The term "competent authority" means:

 

(i)         in the case of India, the Central Government in the Ministry of Finance (Department of Revenue), or its authorised representative;

(ii)        in the case of the United Arab Emirates, the Minister of Finance and Industry or his authorised representative.

 

2. In the application of the provisions of this Agreement by one of the Contracting States any term not defined herein shall, unless the context otherwise requires, have the meaning which it has under the laws in force in that State relating to the taxes which are the subject of this Agreement.

 

ARTICLE 3: Avoidance of double taxation.--1. Income which an enterprise of the United Arab Emirates derives from the operation of aircraft in international traffic shall be exempted in India from Indian tax.

 

2. Income which an enterprise of India derives from the operation of aircraft in international traffic shall be exempted in the United Arab Emirates from United Arab Emirates tax.

 

3. The provisions of paragraphs 1 and 2 shall also apply to income from the participation in a pool, a joint business or an international operating agency.

 

4. For the purpose of paragraphs 1 and 2, interest on funds directly connected with the operation of aircraft in international traffic shall be regarded as income from the operation of such aircraft.

 

5. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise including gains from the alienation of spares and equipment used by the enterprise in the operation of such aircraft shall be taxable only in that State.

 

6. Salaries, wages and other remuneration in respect of an employment exercised aboard an aircraft operated in international traffic shall be taxable only in the Contracting State where the air transport enterprise is managed and controlled, provided that the employee concerned is not a resident in the other Contracting State in accordance with the tax laws of that other State.

 

ARTICLE 4: Residual provisions.--The laws in force in either of the Contracting States will continue to govern the assessment and taxation of income in the Contracting States except where express provision to the contrary is made in this Agreement.

 

ARTICLE 5: Mutual agreement procedure.--1. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement.

 

2. Consultation may be requested at any time by the competent authority of a Contracting State for the purpose of application or interpretation of the article. Such consultation shall begin within 90 days from the date of receipt of any such request and decisions shall be by mutual consent.

 

ARTICLE 6: Entry into force.--1. Each State shall notify to the other the completion of the procedure required by its law for the bringing into force of this Agreement. The Agreement shall enter into force on the first day of the second month following the month in which the latter of these notifications has been given.

 

2. The provisions of this Agreement shall have effect in respect of income derived on or after the 1st day of January, 1971.

 

3. No action would be taken to reopen assessments in respect of the period prior to the 1st day of January, 1971.

 

4. In case a Contracting State collects taxes relating to the above-mentioned period, on income derived from the operation of aircraft by an enterprise of the other Contracting State, then such taxes shall be refunded together with interest if any, in accordance with the laws of the first-mentioned Contracting State.

 

ARTICLE 7: Termination.--This Agreement shall continue in effect indefinitely but either Contracting State may, on or before the thirtieth day of June in any calendar year after the year 1993, give notice of termination to the other Contracting State and in such event this Agreement shall cease to be effective:

 

(a)        in the United Arab Emirates in respect of any tax year commencing on or after the 1st day of January of the second calendar year following the year in which the notice is given;

 

(b)        in India in respect of any assessment year commencing on or after the 1st day of April, of the second calendar year following the year in which the notice is given.

 

It witness whereof, the undersigned, duly authorised thereto have signed this Agreement.

 

Done at New Delhi this third day of March, one thousand nine hundred and eighty-nine in two originals in the Hindi, Arabic and English languages, all texts being equally authentic. In case of dispute as to interpretation and application of this Agreement, the English text shall prevail.

 

For the Government of the                                                    For the Government of the

Republic of India,                                                                   United Arab Emirates,

(Sd.) P. K. Appachoo,                                                             (Sd.) Mohamed Khalfan Khirbash,

Joint Secretary to the Government of India,                        Director of Investment Department,

Ministry of Finance.                                                              Ministry of Finance and Industry.

 

 

 

U.A.R.

 

Convention between the Government of India and the Government of the United Arab Republic for the avoidance of double taxation with respect to taxes on income

Notification No. 128 [F. No. 11(29)-63/TPL], dated 30 September, 1969

 

G.S.R. 2363.--Whereas the annexed Convention between the Government of India and the Government of the United Arab Republic for the avoidance of double taxation with respect to taxes on income has been ratified and the instruments of ratification exchanged, as required by Article 29 of the said Convention;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all the provisions of the said Convention shall be given effect to in the Union of India.

 

ANNEXURE

 

The Government of India and the Government of the United Arab Republic,

 

Desiring to conclude a Convention for the avoidance of double taxation with respect to taxes on income,

 

Have agreed as follows:

 

CHAPTER I

 

Scope of the convention

 

ARTICLE I: Personal scope.--This Convention shall apply to persons who are residents of one or both of the Contracting States.

 

ARTICLE II: Taxes covered.--1. This Convention shall apply to taxes on income imposed on behalf of each Contracting State or of its political sub-divisions or local authorities, where they have the authority, irrespective of the manner in which they are levied.

 

2. There shall be regarded as taxes on income all taxes imposed on total income or on all elements of income including taxes on gains from the sale, exchange or transfer of movable or immovable property and taxes on the total amounts of wages or salaries paid by enterprises.

 

3. The existing taxes to which the Convention shall apply, are, in particular:

 

(a)        in the case of India:

 

(1)        the income-tax, including super tax and the surcharge imposed under the Income-tax Act, 1961 (43 of 1961); and

 

(2)        the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

 

(hereinafter referred to as "Indian tax").

 

(b)        In the case of the United Arab Republic:

 

(1)        tax on income derived from immovable property (including the land tax, the buildings tax and the ghaffir tax);

            (2)        tax on income from movable capital;

            (3)        tax on commercial and industrial profits;

(4)        tax on wages, salaries, indemnities and pensions (as mentioned in Book III of Law (14 of 1939);

            (5)        tax on profits from liberal professions and all other non-commercial professions;

            (6)        general income-tax;

            (7)        defence tax (imposed on income);

            (8)        national security tax (imposed on income); and

(9)        supplementary taxes imposed as percentage of taxes mentioned above;

 

(hereinafter referred to as "United Arab Republic tax").

 

4. The Convention shall also apply to any identical or substantially similar taxes which are subsequently imposed in addition to, or in the place of, the existing taxes.

 

5. At the end of each year, the competent authority of the Contracting States shall notify to each other any significant changes which have been made in their respective taxation laws.

 

CHAPTER II

 

Definitions

 

ARTICLE III: General definitions.--1. In this Convention, unless the context otherwise requires.--

 

(a)        the term "India" shall have the meaning assigned to it in Article I of the Constitution of India;

            (b)        the term "United Arab Republic" means Egypt;

(c)        the terms "a Contracting State" and "the other Contracting State" mean India or the United Arab Republic, as the context requires;

            (d)        the term "tax" means Indian tax or United Arab Republic tax, as the context requires;

(e)        the term "person" includes individuals, companies and all other entities which are treated as taxable units under the tax laws in force in either Contracting State;

(f)        the term "company" for tax purposes means any entity which is treated as a company under the Indian tax law or any entity which is treated as a body corporate under the United Arab Republic tax law;

(g)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean, respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(h)        the term "competent authority" means in the case of India, the Central Government in the Ministry of Finance (Department of Revenue and Insurance); and in the case of the United Arab Republic, the Minister of Treasury or his authorised representative.

 

2. In the application of the provisions of this Convention by one of the Contracting States any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws in force in that State relating to the taxes which are the subject of this Convention.

 

ARTICLE IV: Fiscal domicile.--1. For the purposes of this Convention the term "resident of a Contracting State" means any person who under the law of the State, is resident of that State for the purposes of taxation therein by reason of his domicile, residence, place of management or any other criterion applied under the tax laws of that State.

 

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his case shall be determined in accordance with the following rules:

 

(a)        he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national; and

 

(d)        if he is a national of both Contracting States or if neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.

 

ARTICLE V: Permanent establishment.--1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" shall include:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop or a warehouse;

            (f)        a mine, a quarry, an oil field or other place of extraction of natural resources;

            (g)        a permanent sales exhibition; and

            (h)        a building site or construction or assembly project which exists for more than ninety days.

 

3. The term "permanent establishment" shall not be deemed to include:

 

(a)        the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

 

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

 

(c)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information, for the enterprise; and

 

(d)        the maintenance of fixed place of business solely for the purpose of advertising or for scientific research, for the enterprise.

 

4. A person acting in one of the Contracting States for or on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if:

 

(i)         he has and habitually exercises in that State a general authority to negotiate and enter into contracts for or on behalf of the enterprise, unless the activities of the person are limited to the purchase of goods or merchandise for the enterprise, or

 

(ii)        he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which the person regularly delivers goods or merchandise for or on behalf of the enterprise, or

 

(iii)       he habitually secures orders in the first-mentioned Contracting State exclusively or almost exclusively, for the enterprise itself or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it.

 

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker of a genuinely independent status.

 

6. The fact that a company, which is a resident of one of the Contracting States, has a subsidiary company which either is a resident of the other Contracting State or carries on a trade or business in that other Contracting State (whether through a permanent establishment or otherwise) shall not, of itself, constitute that subsidiary company a permanent establishment of its parent company.

 

CHAPTER III

 

Taxation of income

 

ARTICLE VI: Income from immovable property.--1. Income from immovable property shall be taxable only in the Contracting State in which such property is situated.

 

2. The term "immovable property" shall be defined in accordance with the law and usage of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of professional services.

 

ARTICLE VII: Business profits.--1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

 

2. Where an enterprise of a Contracting State carries on business in the other Contracting State though a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment that profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purpose of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

 

4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this article.

 

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the purpose of export to the enterprise of which it is the permanent establishment.

 

6. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those articles shall not be affected by the provisions of the present article.

 

ARTICLE VIII: Air transport.--1. Income derived from the operation of aircraft by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State unless the aircraft is operated wholly or mainly between places within that other Contracting State.

 

2. Paragraph 1 shall likewise apply in respect of participations in pools of any kind by enterprises engaged in air transport.

 

ARTICLE IX: Shipping.--Income derived from the operation of ships by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State unless the ships are operated wholly or mainly between places within that other Contracting State.

 

ARTICLE X: Associated enterprises.--1. Where--

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

 

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

2. If the information available to the taxation authority concerned is inadequate to determine, for the purposes of paragraph 1 of this article, the profits which might be expected to accrue to an enterprise, nothing in that paragraph shall affect the application of the law of either Contracting State in relation to the liability of that enterprise to pay tax on an amount determined by the exercise of a discretion or the making of an estimate by the taxation authority of that State:

 

Provided that such discretion shall be exercised or such estimate shall be made, so far as the information available to the taxation authority permits, in accordance with the principle stated in that paragraph;

 

Provided further that the amount so determined or the estimate so made may be amended or revised when adequate information is furnished to the taxation authority concerned.

 

ARTICLE XI: Dividends.--1. Dividends paid by a company which is a resident of India to a resident of the United Arab Republic may be taxed in India.

 

2. Dividends paid by a company which is a resident of the United Arab Republic to a resident of India may be taxed in the United Arab Republic. But such dividends shall only be subject to the tax on income derived from movable capital, the defence tax, the national security tax and the supplementary taxes (which taxes shall be deducted at the source). If paid to a natural person, the general income-tax levied on the net total income may also be imposed. Dividends paid shall be deducted from the amount of the distributing company's taxable income or profits subject to the tax chargeable in respect of its industrial and commercial profits if such dividends are distributed out of the taxable profits of the same taxable year but not distributed out of accumulated reserves or other assets.

 

3. Dividends paid by a company which is a resident of India whose activities lie solely or mainly in the United Arab Republic shall, in the United Arab Republic, be treated as mentioned in paragraph 2 of this article when such dividends are distributed in the United Arab Republic.

 

4. Dividends paid by a company which is a resident of the United Arab Republic whose activities lie solely or mainly in India shall, in India, be treated as mentioned in paragraph 1 of this article when such dividends are distributed in India.

 

5. Dividends, deemed under Article 11 of United Arab Republic Law 14 of 1939 to be paid out of the yearly profits of a permanent establishment maintained in the United Arab Republic by an Indian company whose activities extend to countries other than the United Arab Republic shall, in the United Arab Republic, be treated as mentioned in paragraph 2 of this article.

 

The permanent establishment shall be considered to have distributed as dividends in the United Arab Republic within 60 days from the closing of its financial year, an amount equivalent to 90 per cent of its total net profits liable to the tax on industrial and commercial profits without applying the provisions of Article 36 of Law 14 of 1939, provided that the remaining 10 per cent of the net profits shall be set aside to form a special reserve which shall be entered in the local balance sheet submitted annually to the United Arab Republic tax authorities. Such amount shall only be subject to the tax on commercial and industrial profits.

 

All amounts deducted from the aforesaid 10 per cent set aside to form the special reserve for purposes other than the redemption of losses incurred in the trade or business carried on by that permanent establishment situated in the United Arab Republic shall be deemed to have been distributed in the United Arab Republic and shall be taxed accordingly.

 

6. The provisions of paragraphs 1 and 4 of this article, in the case of the United Arab Republic, shall not affect the application of Article 4 of Law 14 of 1939, but the provisions of those paragraphs will be applied for the purpose of elimination of double taxation in accordance with the provisions of paragraph 2 of Article 24 of this Convention.

 

ARTICLE XII: Interest.--1. Interest paid by a resident of India to a resident of the United Arab Republic may be taxed in India.

 

2. Interest paid by a resident of the United Arab Republic to a resident of India may be taxed in the United Arab Republic. But such interest shall only be subject to the tax on income derived from movable capital, the defence tax, the national security tax and the supplementary taxes (which taxes shall be deducted at the source). If paid to a natural person, the general income-tax levied on the net total income may also be imposed.

 

3. The term "interest" as used in this article includes income from Government securities, bonds or debentures (exclusive of interest on debts secured by mortgages on real estate, in which case Article 6 shall apply) and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises.

 

4. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment then such interest shall be deemed to arise in the Contracting State in which the permanent establishment is situated.

 

5. The provisions of paragraph 1 of this article in the case of the United Arab Republic shall not affect the application of Article 4 of Law 14 of 1939, but the provisions of that paragraph will be applied for the purpose of elimination of double taxation in accordance with the provisions of paragraph 2 of Article 24 of this Convention.

 

ARTICLE XIII: Royalties.--1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State.

 

2. The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience but does not include any royalty or other like amount in respect of the operation of mines, quarries or any other place of extraction of natural resources.

 

3. Rents and royalties arising in a Contracting State in respect of cinematographic films and paid to a resident of the other Contracting State shall be taxable only in the first-mentioned State according to the tax laws of that State.

 

4. The provisions of this article shall not apply where founders' shares are issued in the United Arab Republic as a consideration for the rights mentioned in paragraph 2 of this article and taxed in accordance with the provisions of Article 1 of Law 4 of 1939. In such event Article 11 of this Convention shall be applicable.

 

5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State.

 

ARTICLE XIV: Capital gains.--1. Subject to the provisions of paragraph 3, gains from the sale, exchange or transfer of a capital asset being immovable property, as defined in paragraph 2 of Article 6, or movable property shall be taxable only in the Contracting State in which such property is situated.

 

2. For the purpose of this article the situs of the shares of a company shall be deemed to be in the Contracting State where the company is incorporated.

 

3. Capital gains derived from the sale, exchange or transfer of a capital asset being a ship or aircraft shall be taxable only in the Contracting State in which such ship or aircraft is registered.

 

ARTICLE XV: Independent personal services.--1. Income derived by a resident of the United Arab Republic in respect of professional services rendered or other independent activities of a similar character performed in India may be taxed in India only if he is present in India for a period or periods exceeding in the aggregate 183 days during the relevant "previous year", and only to the extent the income is attributable to such services or activities in India.

 

2. Income derived by a resident of India in respect of professional services rendered or other independent activities of a similar character performed in the United Arab Republic may be taxed in the United Arab Republic only if he is present in the United Arab Republic for a period or periods exceeding in the aggregate 183 days during the relevant "fiscal year", and only to the extent the income is attributable to such services or activities in the United Arab Republic.

 

3. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

 

ARTICLE XVI: Dependent personal services.--1. Subject to the provisions of Articles 17, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of the United Arab Republic in respect of an employment exercised in India shall not be taxed in India if:

 

(a)        he is present in India for a period or periods not exceeding in the aggregate 183 days during the relevant "previous year", and

            (b)        the remuneration is paid by, or on behalf of an employer who is not resident of India,

            (c)        the remuneration is subject to United Arab Republic tax, and

(d)        the remuneration is not deducted in computing profits of an enterprise chargeable to Indian tax.

 

3. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of India in respect of an employment exercised in the United Arab Republic shall not be taxed in the United Arab Republic if:

 

(a)        he is present in the United Arab Republic for a period or periods not exceeding in the aggregate 183 days during the relevant "fiscal year", and

 

(b)        the remuneration is paid by, or on behalf of an employer who is not resident of the United Arab Republic, and

 

(c)        the remuneration is subject to Indian tax, and

 

(d)        the remuneration is not deducted in computing profits of an enterprise chargeable to United Arab Republic tax.

 

4. Notwithstanding the preceding provisions of this article, remuneration in respect of an employment exercised aboard a ship or aircraft in international traffic, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.

 

ARTICLE XVII: Directors' fees.--Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

ARTICLE XVIII: Artistes and athletes.--1. Notwithstanding anything contained in Articles 15 and 16 income derived by public entertainers, such as theatre, motion picture, radio or television artistes, and musicians; and by athletes from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.

 

2. The provisions of paragraph 1 shall apply only if the personal activities are exercised in the Contracting State for a period or periods in the aggregate exceeding 15 days during the relevant "previous year" or, as the case may be, "fiscal year", and only in respect of the income attributable to the personal activities exercised in that State.

 

ARTICLE XIX: Pensions.--Subject to the provisions of paragraph 1 of Article 20, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

 

ARTICLE XX: Governmental functions.--1. Remuneration, including pensions, paid by, or out of funds created by, a Contracting State or a political sub-division or a local authority thereof, to any individual in respect of services rendered to that State or sub-division or local authority thereof in the discharge of functions of a governmental nature may be taxed in that State.

 

2. The provisions of paragraph 1 of this article shall also apply to remuneration including pensions, paid by the Central Bank, the Post, Railways, Telephone and Telegraph, Radio and Television organisations of the United Arab Republic and by the Reserve Bank of India, Postal Administration, the Public Railway Authorities and the All India Radio Organisation of India.

 

3. The provisions of Articles 16, 17 and 19 shall apply to remuneration or pensions in respect of services rendered in connection with any trade or business other than those mentioned in paragraph 2 carried on by any of the legal entities mentioned in this article.

 

ARTICLE XXI: Students.--An individual of one of the Contracting States, who is temporarily present in the other Contracting State solely:--

 

(a)        as a student at a university, college or school in the other Contracting State,

            (b)        as a business or technical apprentice, or

(c)        as the recipient of a grant, allowance or award for the primary purpose of study or research from a religious, charitable, scientific or educational organisation,

 

shall not be taxed in the other Contracting State in respect of remittances from abroad for the purposes of his maintenance, education or training or in respect of a scholarship grant. The same shall apply to any amount representing remuneration for services rendered in that other State, provided that such services are in connection with his studies or practical training or are necessary for the purpose of his maintenance.

 

ARTICLE XXII: Professors, teachers and researchers.--A professor or a teacher from one of the Contracting States who receives remuneration for teaching or scientific research, during a period of temporary residence not exceeding two years, at a university, college, technical school or other institution for higher education in the other Contracting State, shall not be taxed in that other Contracting State in respect of that remuneration.

 

ARTICLE XXIII: Income not expressly mentioned.--The laws in force in either of the Contracting States will continue to govern assessment and taxation of income in the respective Contracting States except where express provision to the contrary is made in this Convention.

 

CHAPTER IV

 

Method for elimination of double taxation

 

ARTICLE XXIV: Exemption and credit methods.--1. Where a person being a resident of a Contracting State derives income from the other Contracting State and that income, in accordance with the provisions of this Convention, shall be taxable only in that other Contracting State, or may be taxed in that other Contracting State, the first-mentioned State, shall, subject to the provisions of paragraph 2, exempt such income from tax but may, in calculating tax on the remaining income of that person, apply the rate of tax which would have been applicable if the exempted income had not been so exempted.

 

2. Where a person being a resident of a Contracting State derives income from the other Contracting State and that income, in accordance with the provisions of Articles 11 and 12 may be taxed in that other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that person on amount equal to the tax paid in that other Contracting State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is appropriate to the income derived from that other Contracting State.

 

CHAPTER V

 

Special provisions

 

ARTICLE XXV : Non-discrimination.--1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected.

 

2. The term "nationals" means:

 

(a)        all individuals possessing the nationality of a Contracting State; and

(b)        all legal persons, partnerships and associations deriving their status as such from the law in force in a Contracting State.

 

3. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.

 

This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected in the same circumstances and under the same conditions.

 

5. The provisions of this article shall not be construed as affecting the application in the United Arab Republic of the exemptions conferred in the United Arab Republic by Articles 5 and 6 of Law 14 of 1939.

 

6. In this article the term "taxation" means taxes of every kind as specified in this Convention.

 

ARTICLE XXVI: Mutual agreement procedure.--1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding, the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through representatives of the competent authorities of the Contracting States.

 

ARTICLE XXVII: Exchange of information.--1. The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Convention and of the domestic laws of the Contracting States concerning taxes covered by this Convention in so far as the taxation thereunder is in accordance with this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons or authorities other than those concerned with the assessment, including judicial determination, or collection of the taxes which are the subject of this Convention.

 

2. In no case shall the provisions of paragraph 1 be construed so as to impose on one of the Contracting States the obligation:

 

(a)        to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;

 

(b)        to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; and

 

(c)        to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (order public).

 

ARTICLE XXVIII: Diplomatic and consular privileges.--Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

 

CHAPTER VI

 

Final provisions

 

ARTICLE XXIX: Entry into force.--1. This Convention shall be ratified and the instruments of ratification shall be exchanged at New Delhi as soon as possible.

 

2. This Convention shall enter into force on the date of the exchange of the instruments of ratification and its provisions shall have effect :

 

(a)        In India:

 

(i)         in the case of income derived from operation of aircraft (referred to in Article 8), as respects such income derived during any "previous year" beginning on or after the first day of January, 1961;

 

(ii)        in the case of any other income, as respects income derived during any "previous year" beginning on or after the first day of January of the calendar year in which the exchange of the instruments of ratification takes place.

 

(b)        In the United Arab Republic :

 

(i)         in the case of income from operation of aircraft (referred to in Article 8), as respects such income derived during any accounting period ending on or after the first day of January, 1961;

 

(ii)        in the case of any other income,--

 

(1)        as respects tax on income from movable capital and tax on wages, salaries, indemnities and pensions, which taxes are due on or after the date on which the exchange of the instruments of ratification takes place;

 

(2)        as respects tax on commercial and industrial profits for any accounting period ending on or after the date on which the exchange of the instruments of ratification takes place; and

 

(3)        as respects tax on income derived from immovable property (including the land tax, the building tax and the ghaffir tax), tax on profits from liberal professions and all other non-commercial professions and the general income-tax for the calendar year in which the exchange of the instalments of ratification takes place.

 

The rules in sub-paragraph (b) of this paragraph shall be correspondingly applicable respectively to the defence tax, national security tax and to the supplementary taxes.

 

ARTICLE XXX: Termination.--Either of the Contracting States may terminate this Convention after a period of five years from the date on which this Convention enters into force, by giving to other Contracting State, through the diplomatic channels, written notice of termination, provided that such notice shall be given only on or before the thirtieth day of June in any calendar year, and in such event, this Convention shall cease to be effective:

 

(a)        In India:

 

as respects income derived during any "previous year" beginning on or after the first day of January of the calendar year next following that in which the notice is given.

 

(b)        In the United Arab Republic:

 

(1)        as respects tax on income from movable capital and tax on wages, salaries, indemnities and pensions, which taxes are due on or after the first day of July in the calendar year next following that in which the notice is given;

 

(2)        as respects tax on commercial and industrial profits for any accounting period ending on or after the first day of July in the calendar year next following that in which the notice is given; and

 

(3)        as respects tax on income derived from immovable property (including the land tax, the buildings tax and ghaffir tax), tax on profits from liberal professions and all other non-commercial professions and the general income-tax for the calendar year next following that in which the notice is given.

 

The rules in sub-paragraph (b) of this paragraph shall be correspondingly applicable respectively to the defence tax, national security tax and to the supplementary taxes.

 

In witness whereof the undersigned, being duly authorised thereto, have signed this Convention.

 

Done in duplicate at Cairo this twentieth day of February, 1969 in the English language.

 

Sd./-  Apa B. Pant,                                                      Sd./- Ahmed El. Sayed Shaban,

For the Government of India.                                    For the Government of United Arab Republic

 

Cairo, the 20th February, 1969.

 

Dear Sir,

 

The Convention between the Government of India and the Government of United Arab Republic for the avoidance of double taxation with respect to taxes on income being signed today, I have the honour, on behalf of the Government of India, to inform you that the two Contracting States have agreed as follows:

 

The provisions of Article 8 (Air transport) of the said Convention being operative under the terms of Article 29 (Entry into force) of the Convention, in the case of India, as respects income derived from operation of aircraft during any "previous year" beginning on or after the first day of January, 1961, and in the case of the United Arab Republic, as respects such income derived during any accounting period ending on or after the first day of January, 1961:

 

Where any taxes covered by this Convention have been paid or are payable in one of the Contracting States by a designated airline of the other Contracting State as respects such income derived by it during any "previous year" or accounting period aforesaid, the first-mentioned Contracting State shall refund such taxes to or, as the case may be, refrain from charging such taxes from the designated airline.

 

The designated airline aforesaid shall, in the case of India, be the Air India, and in the case of the United Arab Republic, be the United Arab Airlines.

 

2. I should be grateful if you confirm your agreement to the above understanding of the provisions of Article 8 read with Article 29 of the said Convention, and that in such case, this note and your reply thereto shall be deemed to be part of the Convention.

 

3. Please accept, Your Excellency, the assurances of my highest consideration.

 

Sd./- Apa B. Pant

 

His Excellency Mr. Ahmed El Sayed Shaban,

Under Secretary for the taxation Department,

Ministry of Treasury,

 

Government of the United Arab Republic, Cairo.

 

Cairo, the 20th February, 1969.

 

Dear Sir,

 

With reference to the Convention signed today between the Government of the United Arab Republic and the Government of India for the avoidance of double taxation with respect to taxes on income, you, on behalf of the Government of India, informed me of the following:

 

The Convention between the Government of India and the Government of the United Arab Republic for the avoidance of double taxation with respect to taxes on income being signed today, I have the honour, on behalf of the Government of India, to inform you that the two Contracting States have agreed as follows:

 

The provisions of Article 8 (Air transport) of the said Convention being operative under the terms of Article 29 (Entry into force) of the Convention, in the case of India, as respects income derived from operation of aircraft during any "previous year" beginning on or after the first day of January, 1961, and in the case of the United Arab Republic, as respects such income derived during any accounting period ending on or after the first day of January, 1961:

 

Where any taxes covered by this Convention have been paid or are payable in one of the Contracting States by a designated airline of the other Contracting State as respects such income derived by it during any "previous year" or accounting period aforesaid, the first-mentioned Contracting State shall refund such taxes to or, as the case may be, refrain from charging such taxes from the designated airline.

 

The designated airline aforesaid shall, in the case of India, be the Air India, and in the case of the United Arab Republic, be the United Arab Airlines.

 

I should be grateful if you confirm your agreement to the above understanding of the provisions of Article 8 read with Article 29 of the said Convention, and that in such case, this note and your reply thereto shall be deemed to be part of the Convention.

 

2. I have the honour to confirm that the above-mentioned proposal meets with the approval of the Government of the United Arab Republic.

 

Your note of today's date and my reply thereto shall, therefore, be part of the Convention.

 

3. Please accept, your Excellency, the assurances of my highest consideration.

 

Sd/-

 

Ahmed El Sayed Shaban

 

His Excellency Mr. Apa B. Pant,

Ambassador of India,

 

Cairo.

 

 

UKRAINE

 

Convention between the Government of the Republic of India and the Government of Ukraine for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital

Notification No. 4/2002 [F. No. 501/2/92-FTD], dated 11-1-2002

 

Whereas the annexed Convention between the Government of Republic of India and the Government of Ukraine for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital shall enter into force, on the 31st October, 2001, on the date of the later of notifications by each of the Contracting States to each other, of the completion of the procedures required under their respective laws, as required by Article 30 of the said Convention;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said Convention shall be given effect to in the Union of India.

 

Convention between the Government of the Republic of India and the Government of Ukraine for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital

 

The Government of the Republic of India and the Government of Ukraine

Desiring to conclude a Convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital and confirming their aspiration for the development and strengthening of bilateral relations

Have agreed as follows:--

 

Article 1

Personal scope

 

This Convention shall apply to persons who are residents of one or both of the Contracting States.

 

Article 2

Taxes covered

 

1. This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State or of its political sub-divisions or local authorities, irrespective of the manner in which they are levied.

 

2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital including taxes on gains from the alienation of movable or immovable property and taxes on the total amounts of wages or salaries paid by enterprises as well as taxes on capital appreciation.

 

3. The existing taxes to which this Convention shall apply are in particular:--

 

(a)        In Ukraine:--

 

(i)         the profits tax of enterprise;

            (ii)        the individual income-tax;

            (iii)       tax on property of enterprises;

            (iv)       tax on immovable property of citizens

 

(hereinafter referred to as "Ukrainian tax")

            (b)        In India:--

 

(i)         the income-tax including any surcharge thereon;

            (ii)        the wealth-tax

 

(hereinafter referred to as "Indian tax")

 

4. This Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.

 

Article 3

General definitions

 

1. For the purposes of this Convention, unless the context otherwise requires:--

 

(a)        the term "Ukraine" means the territory of Ukraine, its continental shelf and its exclusive economic (maritime) zone, including any territory outside the territorial sea of Ukraine which, according to international law, is specified or may be specified, in line with the Ukrainian law, as the territory within which the rights of Ukraine relating to sea bed and natural resources are effective;

 

(b)        the term "India" means the territory of India and includes the territorial sea and airspace above it, as well as any other maritime zone in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with international law/U.N. Convention on the law of the sea;

 

(c)        the terms "a Contracting State" and "the other Contracting State" mean Ukraine or India as the context requires;

 

(d)        the term "tax" means Ukrainian or Indian tax, as the context requires, but shall not include any amount which is payable in relation to the taxes to which this Convention applies or which represents a penalty imposed relating to those taxes;

 

(e)        the term "person" includes an individual, a company and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting State;

 

(f)        the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes under the taxation laws in force in the respective Contracting States;

 

(g)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

 

(h)        the term "competent authority" means in the case of Ukraine -- State Tax Administration of Ukraine or its authorised representative; and in case of India -- Ministry of Finance (Department of Revenue) or its authorised representative;

 

(i)         the term "national" means:--

 

(a)        any individual processing the citizenship of a Contracting State;

(b)        any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

 

(j)         the term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

 

(k)       the term "fiscal year" means:--

 

(i)         in the case of Ukraine, calendar year from 1 of January to 31 of December of the year under review;

            (ii)        in the case of India, "previous year" as defined under section 3 of the Income-tax Act, 1961.

 

2. As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention applies.

 

Article 4

Resident

 

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of registration or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that State in respect only of income from sources or capital situated in the Contracting State.

 

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:--

 

(a)        he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in other Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

 

(d)        if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

 

Article 5

Permanent establishment

 

1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" includes especially:--

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;

            (g)        a warehouse in relation to a person providing storage facilities for others;

            (h)        a premises or warehouse used as a sales outlet or for receiving or soliciting orders;

            (i)         an installation or structure used for the exploration or exploitation of natural resources;

(j)         a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than six months.

 

3. An enterprise shall be deemed to have a permanent establishment in a State and to carry on business through that permanent establishment if it provides services or facilities in connection with or supplies plant and machinery on hire used or to be used in, the prospecting for, extraction or production of mineral oils or in connection with such extraction or production of mineral oils in the State.

4. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:--

 

(a)        the use of facilities solely for the purpose of storage, display or unloading of goods or merchandise belonging to the enterprise;

 

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

 

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

 

(d)        the maintenance of fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

 

(e)        the maintenance of a fixed of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.

 

However, the provisions of sub-paragraphs (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purposes other than the purposes specified in the said sub-paragraphs.

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person being a resident of a Contracting State -- other than, an agent or an independent status to whom paragraph 6 applies, is acting on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if--

 

(a)        he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise unless the activities of such person are limited to the purchase of goods or merchandise for the enterprise;

 

(b)        he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or

 

(c)        he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by or subject to the same common control, as that enterprise;

 

(d)        in so acting, he manufactures or processes in that State for the enterprise goods or merchandise belonging to the enterprise.

 

6. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of the enterprise and other enterprises controlling, controlled by or subject to the same common control, as that of the enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

 

7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

 

Article 6

Income from immovable property

 

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships, boats and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting, or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

 

Article 7

Business profits

 

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable directly or indirectly to that permanent establishment.

 

The words "directly or indirectly" mean, for the purposes of this Article, that where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then notwithstanding that other parts of the enterprise have also participated in those transactions, there shall be attributed to the permanent establishment that proportion of profits of the enterprise arising out of those contracts as the contribution of the permanent establishment to those transactions bears to that of the enterprise as a whole.

 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In determining the profits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere in accordance with the provisions of and subject to the limitations of the tax laws of that State.

 

4. In so far as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary, the method of apportionment adopted shall however, be such that the result shall be in accordance with the principles contained in this Article.

 

5. No profits shall be attributed to a permanent establishment by reasons of mere purchase by that permanent establishment of goods or merchandise for the enterprise.

6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

 

7. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

 

Article 8

Shipping and Air Transport

 

1. Profits derived by an enterprise of a Contracting State from operation of aircraft or ships in international traffic shall be taxable only in that State.

 

2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency engaged in the operation of aircraft or ships.

 

3. For the purposes of this Article, interest on amounts connected with the operation of aircraft or ships in international traffic shall be regarded as profits derived from the operation of such aircraft or ships, and the provisions of Article 11 (Interest) shall not apply in relations to such interest.

 

4. For the purposes of this Article, profits from the operation of aircraft or ships in international traffic shall mean profits derived by an enterprise from transportation by air or sea respectively of passengers, mail, livestock, goods or cargoes of every description carried on by the owners or lessees or charterers of aircrafts or ships. This will also include profit from:--

 

(a)        the sale of tickets for such transportation on behalf of other enterprises;

            (b)        the rental on a bareboat ship or aircraft;

(c)        the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transport of goods or merchandises in international traffic.

 

Article 9

Associated enterprises

 

1. Where--

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State;

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

Article 10

Dividends

 

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:--

 

(a)        10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the share of the company paying the dividends;

            (b)        15 per cent of the gross amount of the dividends in all other cases.

 

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

 

3. The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

 

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

5. Where a company which in a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except in so far as such dividends are paid to a resident of that other State or so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

 

Article 11

Interest

 

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall be mutual agreement settle the mode of application of this limitation.

 

3. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds of debentures.

 

4. The provisions of paragraphs 1 and 2 shall not apply of the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14 as the case may be, shall apply.

 

5. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

 

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

 

7. The provisions of this Article shall not apply if its main purpose or one of the main purposes of any persons concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

8. Notwithstanding the provisions of paragraph 2,--

 

(a)        interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by:--

 

--          the Government, a political sub-division or a local authority of the other Contracting State; or

--          the Central bank of the other Contracting State;

 

(b)        interest arising in a Contracting State shall be exempt from tax in that Contracting State if it is derived and beneficially owned by any person (other than a person referred to in sub-paragraph (a) who is a resident of the other Contracting State provided that the transaction giving rise to the debt-claim has been approved in this regard by the Government of the first-mentioned Contracting State.

 

Article 12

Royalties and fees for technical services

 

1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties and fees may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties and fees for technical services the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services.

 

3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience.

 

4. The term "fees for technical services" as used in this Article means payment of any amount to any person other than payments to an employee of a person making payments, in consideration for the services of a managerial, technical or consultative nature, including the provision of services of technical or other personnel.

 

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

 

6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is the State itself, political sub-division, a local authority or a resident of that State. Where, however, the person paying royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

 

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

 

8. The provisions of this Article shall not apply if it is the main purposes or one of the main purposes of person concerned with the creation or transfer of the rights or rendering of services in respect of which the royalties or fees are paid to take advantage of this Article by means of that creation or assignment.

 

Article 13

Capital gains

 

1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

 

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

 

3. Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that Contracting State.

 

4. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly of immovable property and of an interest in a partnership the assets of which consist principally of immovable property situated in a Contracting State may be taxed in that State.

 

5. Gains from the alienation of shares of a company and an interest in a partnership other than those mentioned in paragraph 4, may be taxed in the Contracting State of which the company or partnership is resident.

 

6. Gains from the alienation of any property other than that mentioned in paragraphs 1, 2, 3, 4 and 5, shall be taxable only in the Contracting State of which the alienator is a resident provided that those gains are subject to tax in that Contracting State.

 

Article 14

Independent personal services

 

1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State:--

 

(a)        if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities, in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State;

 

(b)        if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant fiscal year, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

 

2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

 

Article 15

Dependent personal services

 

1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:--

 

(a)        the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

 

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

 

(c)        the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

 

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State of which the enterprise operating the ship or aircraft is a resident.

 

Article 16

 

Directors' Fees

 

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

Article 17

 

Artistes and Sports Persons

 

1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from the personal activities as such exercised in the other Contracting State, may be taxed in that other State.

 

2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in his capacity as such accrues not to the entertainer or sportsperson himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

 

3. Notwithstanding provisions of paragraphs 1 and 2, income mentioned in this Article, will be exempt from taxation in the State in which the activity of actor or sportsperson is financed from the public funds of this and other State, or if such activity is carried out according to the agreement on cultural cooperation concluded between the Contracting States.

 

4. Notwithstanding the provisions of paragraph 2 and Articles 7, 14 and 15, where income in respect of personal activities exercised by an actor or sportsperson in his capacity as such in a Contracting State accrues not to the actor or sportsperson himself but to another person, that income shall be taxable only in the other Contracting State, if that other person is supported wholly or substantially from the public funds of that other State, including any of its political sub-divisions or local authorities.

 

Article 18

 

Remuneration and Pensions in Respect of Government Service

 

1.         (a)        Remuneration, other than a pension, paid by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

            (b)        However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:--

 

(i)         is a national of that State; or

            (ii)        did not become a resident of that State solely for the purpose of rendering the services.

 

2. The provisions of Articles 15 and 16 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or political sub-division or local authority thereof.

 

Article 19

 

Non-Government Pensions and Annuities

 

1. Any pension, other than a pension referred to in Article 19, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first mentioned Contracting State.

 

2. The term "pension" means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.

 

3. The term "annuity" means a stated sum payable periodically at stated time during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for, adequate and full consideration in money's worth.

 

Article 20

 

Payments Received by Students and Apprentices

 

1. A student or business apprentice who is or was a resident of a Contracting State immediately before visiting the other Contracting State and who is present in that other Contracting State solely for the purpose of his education or training shall be exempt from tax in that other State on:--

 

(a)        payments made to him by persons residing outside that other State for the purposes of his maintenance, education or training; and

 

(b)        remuneration from employment in that other State in an amount not exceeding US $ 500 or its equivalent amount in Ukrainian and Indian currency during any fiscal year, as the case may be, provided that such employment is directly related to his studies or is undertaken for the purpose of his maintenance.

 

2. The benefits of this Article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken, but in no event shall any individual have the benefits of this Article for more than five consecutive years from the date of his arrival in that other Contracting State.

 

Article 21

 

Payments Received by Professors, Teachers and Research Scholars

 

1. A professor or teacher who is or was a resident of a Contracting State immediately before visiting the other Contracting State for the purpose of teaching or engaging in research, or both, at a university, college, school or other approved institution in that other Contracting State shall be exempt from tax in that other State on any remuneration for such teaching or research for a period not exceeding two years from the date of his arrival in that other State.

 

2. This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons.

 

3. For the purposes of this Article and Article 20, an individual shall be deemed to be a resident of a Contracting State if he is resident in that State in the fiscal year in which he visits the other Contracting State or in the immediately preceding fiscal year.

 

4. For the purposes of paragraph 1 "approved institution" means an institution which has been approved in this regard by the competent authority of the concerned Contracting State.

 

Article 22

 

Other Income

 

1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income being a resident of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right of property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or Article 15, as the case may be, shall apply.

 

3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention and arising in the other Contracting State may also be taxed in that other Contracting State.

 

Article 23

 

Capital

 

1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

 

2. Capital represented by movable property, forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to the fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services may be taxed in that other State.

 

3. Capital represented by ships, aircraft or motor vehicle operated in international traffic and by movable property pertaining to the operation of such ships, aircraft or motor vehicles, shall be taxable only in the Contracting State of which the enterprise owning such property is a resident.

 

4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

 

Article 24

 

Avoidance of Double Taxation

 

1. The laws in force in either of the Contracting States will continue to govern the taxation of income and capital in the respective Contracting States except where provisions to the contrary are made in this Convention.

 

2. Where a resident of India derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Ukraine, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in Ukraine, whether directly or by deduction; and as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in Ukraine. Such deduction in either case shall not, however, exceed that part of income-tax or tax on capital (as paid before the deduction is given), which is attributable to the income or the capital which may be taxed in Ukraine.

 

3. Taking into account the Ukrainian law on exemption from tax paid outside Ukraine (not being contrary to the provisions of this Article), the Indian tax paid pursuant to the Indian law and this Convention either directly or by deduction from profit, income, or capital, would be allowed as credit against Ukrainian tax in respect of profit, income, or capital imposed under Ukrainian law. In any such case, the credit shall not exceed that part of Ukrainian tax (as was determined before the deduction) which pertains to the profit, income, or capital which may be taxed in India.

 

4. The tax payable in the Contracting State mentioned in paragraphs 2 and 3 of this Article shall be deemed to include the tax which would have been payable but for the tax incentives granted under the laws of the Contracting State and which are designed to promote economic development.

 

5. Income which in accordance with the provisions of this Convention, is not to be subjected to tax in a Contracting State may be taken into account for calculating the rate of tax to be imposed in that Contracting State.

 

Article 25

 

Non-discrimination

 

1. The national of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals or that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

 

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprise of that other State carrying on the same activities in the same circumstances. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first mentioned Contracting State at rate higher than that imposed on the profits of a similar enterprise of the first mentioned State, nor as being in conflict with the provisions of paragraph 3 of Article 7 of this Agreement.

 

3. Nothing contained in this Article shall be construed as obliging a Contracting State to grant to persons not resident in that State any personal allowances, reliefs, reductions and deductions for taxation purposes which are by law available only to persons who are so resident.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first mentioned State are or may be subjected in the same circumstances.

 

5. In this Article, the term "taxation" means taxes which are the subject of this Convention.

 

Article 26

 

Mutual Agreement Procedure

 

1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the State of which he is a resident. The case must be presented within three years from the date of receipt of the first notice of the action resulting in taxation not in accordance with the provisions of the Convention.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the national laws of the Contracting State.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

 

Article 27

 

Exchange of Information

 

1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of the Convention or of the domestic laws of the Contracting States, concerning taxes covered by the Convention, in so far as the taxation thereunder is not contrary to the Convention, in particular for the prevention of fraud or evasion of such taxes. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State. However, if the information is originally regarded as secret in the transmitting State, it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention. Such persons or authorities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial decisions. The competent authorities shall, through consultation, develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchange of information shall be made, including, where appropriate, exchange of information regarding tax avoidance.

 

2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases or both.

 

3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:--

 

(a)        to carry out administrative measures at variance with the laws administrative practice of that or of the other Contracting State;

(b)        to supply information or documents which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

(c)        to supply information or documents which would disclose any trade, business, industrial, commercial or professional secret or trade process or information the disclosure of which would be contrary to public policy.

 

Article 28

 

Assistance in Collection

 

1. The Contracting States undertake to lend assistance and support to each other, in the collection of taxes to which this Convention relates, in the cases where the taxes are definitely due according to the laws of the State making the request.

 

2. In the case of a request for enforcement of collection, tax claims of either of the Contracting States which have been finally determined will be accepted for enforcement by the other Contracting State to which the request is made and collected in that State in accordance with the laws applicable to the enforcement and collection of its taxes.

 

3. In the case of Indian tax, the request will be sent by the Central Board of Direct Taxes Department of Revenue to the State Tax Administration of Ukraine and will be accompanied by such certificate as is required by the laws of India to establish that the taxes have been finally determined and are due from the taxpayer.

 

4. In the case of Ukrainian tax, the request will be sent by the State Tax Administration of Ukraine to the Central Board of Direct Taxes, Department of Revenue, in India and will be accompanied by such certificate as is required by the laws of Ukraine to establish that the taxes have been finally determined and are due from the taxpayer.

 

5. Where the tax claim has not become final by reason of its being subject to appeal or any other proceeding, a Contracting State may, in order to protect its revenues, request the other Contracting State to take such interim measures in this behalf as are lawful under the laws of that other Contracting State.

 

6. A request for assistance in collection of taxes due from a taxpayer shall be made only if adequate assets of that taxpayer are not available for recovering the taxes from him in the Contracting State making the request.

 

7. The Contracting State in which tax is recovered in pursuance of paragraphs 1, 2 and 5 of this Article shall immediately thereafter remit the amount so recovered to the Contracting State which made the request but it shall be entitled to reimbursement of costs, if any, incurred in the course of rendering such assistance to the extent mutually agreed between the competent authorities of the two Contracting States.

 

Article 29

 

Diplomatic and Consular Officials

 

Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

 

Article 30

 

Entry into Force

 

Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:--

 

(a)        in India, in respect of income arising in any previous year beginning on or after the first day of April next following the calendar year in which the Convention enters into force and in respect of capital which is held at the expiry of the previous year following that in which the Convention enters into force or subsequent years.

 

(b)        in Ukraine:

 

(i)         in respect of taxes on dividends, interest or royalties for any payments effected on the 60th or after 60 days following the day of Convention's coming into force;

 

(ii)        in respect of the taxes on profit of enterprise and tax on property of enterprises and tax on immovable property of citizens for any taxable period starting on January 1 of the calendar year following the year of Convention's coming into force;

 

(iii)       in respect of the income-tax imposed on the citizens for any payments effected on the 60th or after 60 days following the day of Convention's coming into force.

 

Article 31

 

Termination

 

This Convention shall remain in force indefinitely but either of the Contracting States may, on or before the thirtieth day of June in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give the other Contracting State through diplomatic channels, written notice of termination and, in such event, this Convention shall cease to have effect:

 

(a)        in India, in respect of income arising in any previous year beginning on or after the 1st day of April next following the calendar year in which the notice is given and in respect of capital which is held at the expiry of any fiscal year beginning on or after 1st April next following the calendar year in which the notice of termination is given;

 

(b)        in Ukraine:

 

(i)         in respect of the taxes on dividends, interest or royalties for any payments effected 60th day or after 60 days following the day on which notice of termination is given;

(ii)        in respect of the taxes on profits of enterprise and tax on property of enterprises and tax on immovable property of citizens for any taxable period starting on 1st January of the calendar year following the year in which notice of termination is given;

(iii)       in respect of the income-tax imposed on the citizens for any payments effected on the 60th or after the 60th day following the day on which notice of termination is given.

 

IN WITNESS WHEREOF the undersigned, being duly authorised thereto, have signed the present Convention.

 

Done in duplicate at KYIV on this April 7th day of one thousand nine hundred and ninety nine in the Hindi, Ukrainian and English languages, all the texts being equally authentic. In case of divergence between any of the two taxes, the English text shall be the operative one.

 

For the Government of the                                                    For the Government of Ukraine

Republic India                                                                                    Ukraine

 

(Vidya Bhushan Soni)                                                            (Mikola Yanovich Azarov)

 

 

 

UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND

 

Double taxation avoidance agreement between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland

Notification No. 9475, dated 11-2-1994

 

Whereas the annexed Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains has entered into force on 26th October, 1993 on the notification by both the Contracting States to each other of the completion of the procedures required by their respective laws, as required by Article 30 of the said Convention.

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said Convention shall be given effect to in the Union of India.

 

ANNEXURE

 

Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains

 

The Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland;

 

Desiring to conclude a new convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

 

Have agreed as follows:

 

ARTICLE 1: Scope of the Convention.--1. This Convention shall apply to persons who are residents of one or both of the Contracting States.

 

2. This Convention extends to the territory of each Contracting State, including its territorial sea, and to those area of the exclusive economic zone or the continental shelf adjacent to the outer limit of the territorial sea of each State over which it has, in accordance with international law, sovereign rights for the purpose of exploration and exploitation of the natural resources of such areas, and references in this Convention to the Contracting State or to either of them shall be construed accordingly.

 

ARTICLE 2: Taxes covered.--1. The taxes which are the subject of this Convention are:

 

(a)        in the United Kingdom;

 

(i)         the income-tax;

            (ii)        the corporation tax;

            (iii)       the capital gains tax; and

            (iv)       the petroleum revenue tax;

 

(hereinafter referred in as "United Kingdom tax");

 

(b)        in India:

                        the Income-tax including any surcharge thereon;

 

(hereinafter referred to as "Indian tax").

 

2. This Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the taxes of that Contracting State referred to in paragraph 1 of this Article. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.

 

ARTICLE 3: General definitions.--1. In this Convention, unless the context otherwise requires:

 

(a)        the term "United Kingdom" means Great Britain and Northern Ireland;

            (b)        the term "India" means the Republic of India;

(c)        the term "tax" means United Kingdom tax or Indian tax, as the context requires but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which this Convention applies or which represents a penalty imposed relating to those taxes;

(d)        the term "fiscal year" in relation to Indian tax means "previous year" as defined in the Income-tax Act, 1961 (43 of 1961) and in relation to United Kingdom tax means a year beginning with 6 April in one year and ending with 5 April in the following year;

(e)        the terms "a Contracting State" and "the other Contracting State" mean India or the United Kingdom, as the context requires;

(f)        the term "persons" includes an individual, a company and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting State, but, subject to paragraph 2 of this Article, does not include a partnership;

(g)        the term "company" means any body corporate or any entity which is treated as a company or body corporate for tax purposes;

(h)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(i)         the term "competent authority" means, in the case of the United Kingdom, the Commissioners of Inland Revenue or their authorised representative, and, in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorised representative;

(j)         the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State except when the ship or aircraft is operated solely between places in the other Contracting State;

(k)       the term "Government" means the Government of a Contracting State or a political sub-division or local authority thereof. In relation to the United Kingdom, the term "political sub-division" shall include Northern Ireland.

 

2. A partnership which is treated as a taxable unit under the Income-tax Act, 1961 (43 of 1961) of India shall be treated as a person for the purposes of this Convention.

 

3. As regards the application of this Convention by a Contracting State any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the tax which are the subject of this Convention.

 

ARTICLE 4: Fiscal domicile.--1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

 

2. Where by reason of the provisions of paragraph 1 of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:

 

(a)        he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

 

(d)        if he is national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.

 

ARTICLE 5: Permanent establishment.--1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" shall include especially:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        premises used as a sales outlet or for receiving or soliciting orders;

            (g)        a warehouse in relation to a person providing storage facilities for others;

            (h)        a mine, an oil or gas well, quarry or other place of extraction of natural resources;

            (i)         an installation or structure used for the exploration or exploitation of natural resources;

(j)         a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment;

(k)       the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and  fees for  technical services), within a Contracting State by an enterprise through employees or other personnel, but only if:

(i)         activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or

(ii)        services are performed within that State for an enterprise within the meaning of paragraph 1 of Article 10 (Associated enterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period:

 

Provided that for the purposes of this paragraph an enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of, mineral oils in that State.

 

3. The term "permanent establishment" shall not be deemed to include:

 

(a)        the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

(e)        the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being activities solely of a preparatory or auxiliary character in the trade of business of the enterprise. However, this provision shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purpose or purposes other than the purposes specified in this paragraph;

(f)        the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

 

4. A person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State -- other than an agent of an independent status to whom paragraph (5) of this Article applies -- shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if:

 

(a)        he has, and habitually exercises in that State, an authority to negotiate and enter into contracts for or on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or

(b)        he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the enterprise; or

(c)        he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common  control, as that enterprise.

 

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, if the activities of such an agent are carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it or are subject to same common control) he shall not be considered to be an agent of an independent status for the purposes of this paragraph.

 

6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

 

7. For the purposes of this Article the term "control" in relation to a company, means the ability to exercise control over the company's affairs by means of the direct or indirect holding of the greater part of the issued share capital of voting power in the company.

 

ARTICLE 6: Income from immovable property.--1. Income from immovable property may be taxed in the Contracting State in which such property is situated.

 

2          (a)        The term "immovable property" shall, subject to the provisions of sub-paragraph (b) of this paragraph, be defined in accordance with the law of the Contracting State in which the property in question is situated.

            (b)        The term "immovable property" shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payment as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 of this Article shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 of this Article shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

 

ARTICLE 7: Business profits.--1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment.

 

2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment.

 

3. Where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then, notwithstanding that other parts of the enterprise have also participated in those transactions, that proportion of profits of the enterprise arising out of those contracts which the contribution of the permanent establishment to those transactions bears to that of the enterprise as a whole shall be treated for the purposes of paragraph 1 of this Article as being the profits indirectly attributable to that permanent establishment.

 

4. Insofar as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraphs 1 and 2 of this Article shall preclude that Contracting State from determining the profits to be fixed by such an apportionment as may be necessary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this Article.

 

5. Subject to paragraphs 6 and 7 of this Article, in the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of and subject to the limitations of the domestic law of the Contracting State in which the permanent establishment is situated.

 

6. Where the law of the Contracting State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and the restriction is relaxed or overridden by any Convention between  that Contracting State and a third State which is a member of the Organisation for Economic Corporation and Development or a State in a comparable stage of development, and that Convention enters into force after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the relevant paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other Contracting State so requests, the provisions of this Convention shall be amended by protocol to reflect such terms.

 

7. Paragraph 5 of this Article shall not apply to amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except on the case of a banking enterprise, by way of interest on monies lent to the permanent establishment; nor shall account be taken in the determination of the profits of a permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the head office of the enterprise or any of its other offices.

 

8. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

 

9. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

 

ARTICLE 8: Air transport.--1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State.

 

2. The provisions of paragraph 1 of this Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport.

 

3. For the purposes of this Article the term "operation of aircraft" shall include transportation by air of persons, livestock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation.

 

4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.

 

ARTICLE 9: Shipping.--1. Income of an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that State.

 

2. The provisions of paragraph 1 of this Article shall not apply to income from journeys between places which are situated in a Contracting State.

 

3. For the purposes of this Article, income from the operation of ships includes income derived from the rental on a bareboat basis of ships if such rental income is incidental to the income described in paragraph 1 of this Article.

 

4. Notwithstanding the provisions of Article 7 (Business profits) of this Convention, the provisions of paragraphs 1 and 2 of this Article shall likewise apply to income of an enterprise of a Contracting State from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise.

 

5. The provisions of this Article shall apply also to income derived from participation in a pool, a joint business or an international operating agency.

 

6. Gains derived by an enterprise of a Contracting State from the alienation of ships or containers owned and operated by the enterprise shall be taxed only in that State if either the income from the operation of the alienated ships or containers was taxed only in that State, or the ships or containers are situated outside the other Contracting State at the time of the alienation.

 

ARTICLE 10: Associated enterprises.--1. Where:

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

2. Where a Contracting State includes in the profits of an enterprise of that State -- and taxes accordingly -- profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State of the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

 

ARTICLE 11: Dividends.-- 1. (a) A dividend paid by a company which is a resident of the United Kingdom to a resident of India may be taxed in India.

 

(b) Where under paragraph 2 of this Article, a resident of India is entitled to a tax credit in respect of that dividend, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom on the aggregate of the amount or value of the dividend and the amount of the tax credit, at a rate not exceeding 15 per cent.

 

(c) Except as provided in sub-paragraph (b) of this paragraph, a dividend derived from a company which is a resident of the United Kingdom by a resident of India, who is the beneficial owner of that dividend, shall be exempt from any tax in the United Kingdom which is chargeable on dividends.

 

2. An individual who is a resident of India and who receives a dividend from a company which is a resident of the United Kingdom shall, provided he is the beneficial owner of the dividend, be entitled to the tax credit in respect of that dividend which an individual resident in the United Kingdom would have been entitled to had he received that dividend, and to the payment of any excess of that tax credit over his liability to United Kingdom tax.

 

3. A dividend paid by a company which is a resident of India to a resident of the United Kingdom may be taxed in the United Kingdom. The dividend may also be taxed in India but the Indian tax is charged shall not exceed 15 per cent of the gross amount of the dividend.

 

4. The preceding paragraphs of this Article shall not affect the taxation of the company in respect of the profits out of which the dividend is paid.

 

5. The provisions of paragraphs 1 and 2 or, as the case may be, paragraph 3 of this Article shall not apply if the beneficial owner of the dividend, being a resident of a Contracting State, has, in the other Contracting State of which the company paying the dividend is a resident, a permanent establishment or fixed base with which the holding by virtue of which the dividend is paid is effectively connected. In such a case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.

 

6. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State.

 

7. As used in this Article the term "dividend" means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights treated in the same manner as income from shares by the taxation law of the State of which the company making the distribution is a resident and any other item treated as a dividend or distribution under that law.

 

ARTICLE 12: Interest.--1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

 

3. Notwithstanding the provisions of paragraph 2 of this Article:

 

(a)        where the interest is paid to a bank carrying on a bona fide banking business which is a resident of the other Contracting State and is the beneficial owner of the interest, the tax charged in the Contracting State in which the interest arises shall not exceed 10 per cent of the gross amount of the interest;

 

(b)        where the interest is paid to the Government of one of the Contracting States or a political sub-division or local authority of that State or the Reserve Bank of India, it shall not be subject to tax by the State in which it arises.

 

4. Notwithstanding the provisions of Article 7 of this Convention and of paragraphs 2 and 3 of this Article:

 

(a)        interest arising in India which is paid to and beneficially owned by a resident of the United Kingdom shall be exempt from tax in India if it is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured by the United Kingdom Export Credits Guarantee Department; and

 

(b)        interest arising in the United Kingdom which is paid to and beneficially owned by a resident of India shall be exempt from tax in the United Kingdom if it is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured by the Export Credits and Guarantee Corporation of India and/or Export-Import Bank of India.

 

5. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures but, subject to the provisions of paragraph 9 of this Article, shall not include any item which is treated as a distribution under the provisions of Article 11 (Dividends) of this Convention.

 

6. The provisions of paragraphs 1, 2 and 3(a) of this Article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.

 

7. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by that permanent establishment or fixed base. Then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

 

9. Any provision in the laws of either Contracting State relating only to interest paid to a non-resident company shall not operate so as to require such interest paid to a company which is a resident of the other Contracting State to be treated as a distribution or dividend by the company paying such interest or to be left out of account as a deduction in computing the taxable profits of the company paying the interest. The preceding sentence shall not apply to interest paid to a company which is a resident of one of the Contracting States in which more than 50 per cent of the voting power is controlled, directly or indirectly, by a person or persons who are residents of the other Contracting State.

 

10. The relief from tax provided for in paragraph 2 of this Article shall not apply if the beneficial owner of the interest:

 

(a)        is exempt from tax on such income in the Contracting State of which he is a resident; and

 

(b)        sells or makes a contract to sell the holding from which such interest is derived within three months of the date such beneficial owner acquired such holding.

 

11. The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

 

ARTICLE 13: Royalties and fees for technical services.--1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed:

 

(a)        in the case of royalties within paragraph 3(a) of this Article, and fees for technical services within paragraphs 4(a) and (c) of this Article;

 

(i)         during the first five years for which this Convention has effect;

 

(aa)      15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and

 

(bb)      20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and

 

(ii)        during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services;

 

and

 

(b)        in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services.

 

3. For the purposes of this Article, the term "royalties" means:

 

(a)        payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and

 

(b)        payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.

 

4. For the purposes of paragraph (2) of this Article, and subject to paragraph 5 of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which:

 

(a)        are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this Article is received; or

 

(b)        are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or

 

(c)        make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.

 

5. The definitions of fees for technical services in paragraph 4 of this Article shall not include amounts paid:

 

(a)        for services that the ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article;

 

(b)        for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic;

 

(c)        for teaching in or by educational institutions;

 

(d)        for services for the private use of the individual or individuals making the payment; or

 

(e)        to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention.

 

6. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.

 

7. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to make payments was incurred and the payments are borne by that permanent establishment or fixed base then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

 

9. The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties or fees for technical services are paid to take advantage of this Article by means of that creation or assignment.

 

ARTICLE 14: Capital gains.--Except as provided in Article 8 (Air transport) and 9 (Shipping) of this Convention, each Contracting State may tax capital gains in accordance with the provisions of its domestic law.

 

ARTICLE 15: Independent personal services.--1. Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State of such services are performed in that other State and if:

 

(a)        he is present in that other State for a period or periods aggregating 90 days in the relevant fiscal year; or

 

(b)        he, or the partnership, has a fixed base regularly available to him, or it, in that other State for the purpose of performing his activities;

 

but in each case only so much of the income as is attributable to those services.

 

2. For the purpose of paragraph 1 of this Article an individual who is a member of a partnership shall be regarded as being present in the other State during days on which, although he is not present, another individual member of the partnership is so present and performs professional services or other independent activities of a similar character in that State.

 

3. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountant.

 

ARTICLE 16: Dependent personal services.--1. Subject to the provisions of Articles 17 (Directors' fees), 18 (Artistes and athletes), 19 (Governmental remuneration and pensions), 20 (Pensions and annuities), 21 (Students and trainees) and 22 (Teachers) of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1 of this Article remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall not be taxed in that other State if:

 

(a)        he is present in that other State for a period or periods not exceeding in the aggregate 183 days during the relevant fiscal year;

 

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and

 

(c)        the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State.

 

3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised abroad a ship or aircraft in international traffic may be taxed in the Contracting State of which the person deriving the profits from the operation of the ship or aircraft is a resident.

 

ARTICLE 17: Directors' fees.--Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the Board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

ARTICLE 18: Artistes and athletes.--1. Notwithstanding the provisions of Articles 15 (Independent personal services) and 16 (Dependent personal services) of this Convention, income derived by entertainers (such as stage, motion picture, radio or television artistes and musicians) or athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.

 

2. Where income arising from personal activities are such exercised in a Contracting State by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7 (Business profits), 15 (Independent personal services) and 16 (Dependent personal services) of this Convention, be taxed in that Contracting State.

 

3. The provisions of paragraphs 1 and 2 of this Article shall not apply if the visit to a Contracting State of the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public funds of the other Contracting State, including a political sub-division or local authority of that other State.

 

ARTICLE 19: Governmental remuneration and pensions.--1. Remuneration, other than a pension, paid by the Government of a Contracting State to any individual who is a national of that State in respect of services rendered in the discharge of governmental functions in the other Contracting State shall be exempt from tax in that other Contracting State.

 

2. Any pension paid by the Government of a Contracting State to any individual in respect of services rendered to that Government shall be taxable only in that Contracting State.

 

3. The provisions of this Article shall not apply to remuneration or pensions in respect of services rendered in connection with any trade or business.

 

ARTICLE 20: Pensions and annuities.--1. Any pension, other than a pension referred to in Article 19(2) of this Convention, or annuity paid to a resident of a Contracting State shall be taxable only in that State.

 

2. The term "pension" means a periodic payment made in consideration of past employment or by way of compensation for injuries received in the course of performance of employment or any payments made under the social security legislation of either Contracting State.

 

3. The term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

 

ARTICLE 21: Students and trainees.--1. An individual who is a resident of a Contracting State or was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State of the primary purpose of:

 

(a)        studying at a university or other accredited or recognised educational institution in that other Contracting State; or

 

(b)        securing training required to qualify him to practice a profession or a professional speciality; or

 

(c)        studying or doing research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary or educational organisation; shall not be subject to tax by that other Contracting State in respect of:

 

(i)         gifts from abroad for the purposes of his maintenance, education, study, research or training;

            (ii)        the grant, allowance or award; and

(iii)       income from personal services rendered in that other Contracting State (other than any rendered by an articled clerk or other person undergoing professional training to the person or partnership to whom he is articled or who is providing the training) not exceeding the sum of 750 pounds sterling or its equivalent in Indian currency during any fiscal year.

 

2. The exemptions under paragraph 1 of this Article shall only extend for such period of time as may be reasonably or customarily required for the purpose of the visit, but in no event shall any individual have the benefit of paragraph 1 of this Article for more than 5 years.

 

3. An individual who is a resident of a Contracting State or was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State for a period not exceeding 12 months, as an employee of, or under contract with, a resident of the first-mentioned Contracting State, for the primary purpose of:

 

(a)        acquiring technical, professional or business experience from a person other than that resident of the first-mentioned Contracting State; or

 

(b)        studying at a university or other accredited or recognised institution in that other Contracting State;

 

shall not be subject to tax by that other Contracting State on his income from personal services performed in the other Contracting State for that period in an amount not exceeding 1,500 pounds sterling or its equivalent in Indian currency.

 

4. An individual who is a resident of a Contracting State or was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State for a period not exceeding 12 months as a participant in a programme sponsored by the Government of the other Contracting State, for the primary purpose of training, research or study, shall not be subject to tax by that other Contracting State in respect of payments made by the Government of the first-mentioned Contracting State for the purposes of his maintenance, training, research, or study.

 

ARTICLE 22: Teachers.--1. An individual who visits a Contracting State for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognised educational institution in that State, and who was immediately before that visit a resident of the other Contracting State, shall be exempted from tax by the first-mentioned Contracting State on any remuneration for such teaching or research for a period not exceeding two years from the date he first visits that State for such purpose.

 

2. This Article shall only apply to income from research if such research is undertaken by the individual in the public interest and not primarily for the benefit of some other private person or persons.

 

ARTICLE 23: Other income.--1. Subject to the provisions of paragraph 2 of this Article, items of income beneficially owned by a resident of a Contracting State, wherever arising, other than income paid out of trusts or the estates of deceased persons in the course of administration, which are not dealt with in the foregoing Articles of this Convention, shall be taxable only in that State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right of property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15 of this Convention, as the case may be, shall apply.

 

3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention, and arising in the other Contracting State may be taxed in that other State.

 

ARTICLE 24: Elimination of double taxation.--1. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (with shall not affect the general principle hereof):

 

(a)        Indian tax payable under the laws of India and in accordance with the provisions of this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within India (excluding, in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Indian tax is computed.

 

(b)        In the case of a dividend paid by a company which is a resident of India to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account (in addition  to any Indian tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph) the Indian tax payable by the company in respect of the profits out of which such dividend is paid.

 

2. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax or tax paid in a territory outside India (which shall not affect the general principle hereof), the amount of the United Kingdom tax paid, under the laws of the United Kingdom and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in respect of income from sources within the United Kingdom which has been subjected to tax both in India and the United Kingdom shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax.

 

For the purposes of the credit referred to in this paragraph, where the resident of India is a company by which surtax is payable, the credit to be allowed against Indian tax shall be allowed in the first instance against the income-tax payable by the company in India and, as to the balance, if any, against the surtax payable by it in India.

 

3. Subject to paragraph 5 of of this Article, for the purposes of paragraph 1 of this Article the term "Indian tax payable" shall be deemed to include:

 

(a)        any amount which would have been payable as Indian tax but for a deduction allowed in computing the taxable income or an exemption or reduction of tax granted for that year in question under the provisions of the Income-tax Act, 1961 (43 of 1961) referred to in paragraph 4(a) or (b) of this Article;

 

(b)        that proportion of any amount which would have been payable as Indian tax by a resident of India but for a deduction allowed in computing the taxable income or an exemption or reduction granted for the year in question under the provisions of the Income-tax Act, 1961 (43 of 1961) referred to in paragraph 4(c) of this Article which corresponds to the proportion of that resident's total production in that year which was actually sold in the Indian Domestic Tariff Area under Orders issued by the Chief Controller of Imports and Exports bearing Nos. 21/90-93, 22/90-93, 23/90-93, 25/90-93, 26/90-93, 27/90-93, dated 30 March, 1990 and similar Orders from time to time published in the Official Gazette by the Central Government under power conferred to it by section 3 of the Import and Export (Control) Act, 1947 (18 of 1947).

 

4. The provisions referred to in this paragraph are:

 

(a)        Sections 10(4), 10(4B), 10(6)(viia), 10(15)(iv), 33AB, 80HHD, 80-I and 80-IA;

(b)        any other provision which may subsequently be enacted granting an exemption or reduction from tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character to a provision referred to in sub-paragraph (a) of this paragraph, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character;

(c)        sections 10A and 10B.

 

5. Relief from United Kingdom tax shall not be given by virtue of this paragraph 3 of this Article in respect of income from any source if the income relates to a period starting more than 10 fiscal years after the deduction in computing taxable income or exemption from, or reduction  of, Indian tax is first granted to the resident of the United Kingdom or to the resident of India, as the case may be, in respect of that source.

 

6. Income which in accordance with the provisions of this Convention is not to be subjected to tax in a Contracting State may be taken into account for calculating the rate of tax to be imposed in that Contracting State on other income.

 

7. For the purposes of paragraphs 1 and 2 of this Article profits, income and chargeable gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the provisions of this Convention shall be deemed to arise from sources in that other Contracting State.

 

ARTICLE 25: Partnerships.--1. Where, under any provision of this Convention, a partnership is entitled, as a resident of India, to exemption from tax in the United Kingdom on any income or capital gains, that provision shall not be construed as restricting the right of the United Kingdom to tax any member of the partnership who is a resident of the United Kingdom on his share of the income and capital gains of the partnership; but any such income or gains shall be treated for the purposes of Article 24 of this Convention as income or gains from sources in India.

 

2. Nothing in Article 11 of this Convention shall entitle a partnership which is a resident of India to a tax credit in respect of dividends paid to the partnership by a company which is a resident of the United Kingdom; but any member of the partnership who is a resident of India shall be regarded as entitled to the tax credit to which he would have been entitled under that Article, if his share of those dividends has been paid to him by the company which is a resident of the United Kingdom.

 

ARTICLE 26: Non-discrimination.--1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

 

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances or under the same conditions. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first-mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first-mentioned Contracting State, nor as being in conflict with the provisions of paragraph 4 of Article 7 of this Convention.

 

3. Nothing contained in this Article shall be construed as obliging a Contracting State to grant to individuals not resident in that State any personal allowances, reliefs and reductions for taxation purposes which are by law available only to individuals who are so resident.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.

 

5. In this Article, the term “taxation” means taxes which are the subject of this Convention.

 

ARTICLE 27: Mutual agreement procedure.--1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

 

ARTICLE 28: Exchange of information.--1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting State concerning taxes covered by this Convention, insofar as the taxation thereunder is not contrary to this Convention, in particular for the prevention of fraud or evasion of such taxes. The exchange of information is not restricted by Article 1 of this Convention. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State. However, if the information is originally regarded as secret in the transmitting State it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of this Convention. Such persons or authorities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial decisions. The competent authorities shall, through consultation, develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchanges of information shall be made, including, where appropriate, exchanges of information regarding tax avoidance.

 

2. In no case shall the provisions of paragraph 1 of this Article be construed so as to impose on a Contracting State the obligation:

 

(a)        to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

 

(b)        to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

 

(c)        to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy.

 

ARTICLE 29: Diplomatic and consular officials.--1. Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

 

2. Notwithstanding the provisions of paragraph 1 of Article 4 (Fiscal domicile) of this Convention, an individual who is a member of the diplomatic, consular or permanent mission of a Contracting State which is situated in the other Contracting State and who is subject to tax in that other State only if he derives income from sources therein, shall not be deemed to be a resident of that other State for the purposes of this Convention.

 

ARTICLE 30: Entry into force.--1. Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:

 

(a)        in the United Kingdom:

 

(i)         in respect of income-tax and capital gains tax, for any year of assessment beginning on or after 6 April in the calendar year next following that in which the later of the notifications is given;

 

(ii)        in respect of corporation tax, for any financial year beginning on or after 1 April in the calendar year next following that in which the later of the notifications is given;

 

(iii)       in respect of petroleum revenue tax, for any chargeable period beginning on or after 1 January in the calendar year next following that in which the later of the notifications is given;

 

(b)        in India, in respect of income arising in any fiscal year beginning on or after the first day of April next following the calendar year in which the later of the notifications is given.

 

2. Subject to the provisions of paragraph 3 of this Article, the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains signed in New Delhi on 16 April, 1981 (hereinafter referred to as “the 1981 Convention”) shall terminate and cease to be effective from the date upon which this Convention has effect in respect of the taxes to which this Convention applies in accordance with the provisions of paragraph 1 of this Article.

 

3. Where any provisions of the 1981 Convention would have afforded any greater relief from tax than is due under this Convention, any such provision as aforesaid shall continue to have effect:

 

(a)        in the United Kingdom, for any year of assessment or financial year; and

            (b)        in India, for any fiscal year;

 

beginning, in either case, before the entry into force of this Convention.

 

ARTICLE 31: Termination.--This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through  the diplomatic channel, by giving notice of termination at least six months before the end of any calendar year beginning after the expiration of ten years from the date of entry into force of the Convention. In such event, the Convention shall cease to have effect:

 

(a)        in the United Kingdom:

 

(i)         in respect of income-tax and capital gains tax, for any year of assessment beginning on or after 6 April in the calendar year next following that in which the notice is given;

(ii)        in respect of corporation tax, for any financial year beginning on or after 1 April in the calendar year next following that in which the notice is given;

(iii)       in respect of petroleum revenue tax, for any chargeable period beginning on or after 1 January in the calendar year next following that in which the notice is given;

 

(b)        in India, in respect of income arising in any fiscal year beginning on or after the first day of April next following the calendar year in which the notice is given.

 

In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Convention.

 

Done on this 25th day of January, 1993, in New Delhi on two original copies each in the Hindi and English languages, both texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one.

 

For the Government of                                                          For the Government of the United

the Republic of India:                                                            Kingdom of Great Britain and Northern Ireland

(S. RAMAMURTI)                                                               (NICHOLAS FENN)

BRITISH HIGH COMMISSION

 

NEW DELHI. JANUARY 25, 1993

 

Your Excellency,

 

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland:

 

(a)        that, in applying sub-paragraph (j) of paragraph 2 of Article 5, for the purpose of determining whether a building site or construction installation or assembly project or supervisory activity in connection therewith has continued for a period of more than six months, the Contracting States shall:

 

(i)         take no account of time previously spent by employees of the enterprise on other sites or projects which have no connection with the site or project in question;

 

(ii)        apply the more than six months test separately to each site or project which has no connection with any other site or project and to each group of connected sites or projects; and

 

(iii)       regard a building site as a single site, even if several contracts have been entered into for the work being done, provided that it forms a coherent whole commercially and geographically;

 

(b)        that, in applying paragraph 3 of Article 7, for the purpose of determining whether a permanent establishment has taken an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, the Contracting States shall take into consideration all relevant circumstances and, in particular, the fact that a contract or order relating to the purchase or provision of goods or services was negotiated or placed with the head office of the enterprise, rather than with the permanent establishment, shall not preclude them from determining that the permanent establishment did take an active part in negotiating, concluding or fulfilling that contract;

 

(c)        that, in applying paragraph 1 of Article 8, for the purpose of determining the profits of an enterprise which are derived from the operation of aircraft in international traffic, the Contracting States shall treat interest derived from the investment or deposit of receipts arising directly from the operation of aircraft in international traffic as being included in those profits, but shall not treat interest derived from the reinvestment of such interest as being so included.

 

If the foregoing proposal is acceptable to the Government of the Republic of India I have the honour to suggest that the present Note and Your Excellency‘s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter.

 

I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration

 

(NICHOLAS FENN)

High Commissioner

His Excellency Mr. S. Ramamurti,

Chairman,

Central Board of Direct Taxes,

Ministry of Finance,

Government of India,

New Delhi.

 

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

CENTRAL BOARD OF DIRECT TAXES

 

NEW DELHI. JANUARY 25, 1993.

 

Your Excellency,

 

I have the honour to acknowledge receipt of Your Excellency‘s Note of today which reads as follows:

 

“I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland:

 

(a)        that, in applying sub-paragraph (j) of paragraph 2 of Article 5, for the purpose of determining whether a building site or construction, installation or assembly project or supervisory activity in connection therewith has continued for a period of more than six months, the Contracting States shall:

 

(i)         take no account of time previously spent by employees of the enterprise on other sites or projects which have no connection with the site or project in question;

(ii)        apply the more than six months test separately to each site or project which has no connection with any other site or project and to each group of connected sites or projects; and

(iii)       regard a building site as a single site, even if several contracts have been entered into for the work being done provided that it forms a coherent whole commercially and geographically;

 

(b)        that, in applying paragraph 3 of Article 7, for the purpose of determining whether a permanent establishment has taken an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, the Contracting States shall take into consideration all relevant circumstances and, in particular, the fact that a contract or order relating to the purchase or provision of goods or services was negotiated or placed with the head office of the enterprise, rather than with the permanent establishment, shall not preclude them from determining that the permanent establishment did take an active part in negotiating, concluding or fulfilling that contract;

 

(c)        that, in applying paragraph 1 of Article 8, for the purpose of determining the profits of an enterprise which are derived from the operation of aircraft in international traffic, the Contracting States shall treat interest derived from the investment or deposit of receipts arising directly from the operation of aircraft in international traffic as being included in those profits, but shall not treat interest derived from the reinvestment of such interest as being so included.

 

If the foregoing proposal is acceptable to the Government of the Republic of India I have the honour to suggest that the present Note and Your Excellency‘s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter.”

 

In reply, I have the honour to state that the Government of the Republic of India accepts the proposal made therein and agrees that Your Excellency‘s Note and the present reply shall constitute an agreement between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland in this matter.

 

I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration.

 

(S. RAMAMURTI)

Chairman

Central Board of Direct Taxes India

HIS EXCELLENCY

Sir Nicholas Fenn, KCMG

British High Commissioner

in India

 

New Delhi.

 

 

UNITED KINGDOM

 

Convention between the Government of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxation income and capital gains

 

Notification No. 501/6/75-FTD, dated 23 November, 1981

 

G.S.R. 612(E).--Whereas the annexed Convention between the Government of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains has come into force on the notification by both the Contracting States to each other of completion of the procedures required by their respective laws, as required by Article 27 of the said Convention.

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all the provisions of the said Convention shall be given effect to in the Union of India.

 

ANNEXURE

 

The Government of India and the Government of the United Kingdom of Great Britain and Northern Ireland;

 

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains :

 

Have agreed as follows:

 

ARTICLE I: Personal scope.--This Convention shall apply to persons who are residents of one or both of the Contracting States.

 

ARTICLE II: Taxes covered.--(1) The taxes which are the subject of this Convention are:

 

(a)        In the United Kingdom of Great Britain and Northern Ireland:

 

(i)         the income tax;

(ii)        the corporation tax;

            (iii)       the capital gains tax;

            (iv)       the petroleum revenue tax; and

            (v)        the development land tax;

 

(hereinafter referred to as "United Kingdom tax");

 

(b)        In India:

 

(i)         the income-tax and any surcharge thereon imposed under the Income-tax Act, 1961 (43 of 1961); and

            (ii)        the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

 

(hereinafter referred to as "Indian tax").

 

2. This Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.

 

ARTICLE III: General definitions.--1. In this Convention unless the context otherwise requires--

 

(a)        the term "United Kingdom" means Great Britain and Northern Ireland, including any area outside the territorial sea of the United Kingdom which in accordance with international law has been or may hereinafter be designated under the laws of the United Kingdom concerning the Continental Shelf, as an area within which the rights of the United Kingdom with respect to the sea bed and sub-soil and their natural resources may be exercised;

 

(b)        the term "tax" means United Kingdom tax or Indian tax, as the context requires;

 

(c)        the term "fiscal year" in relation to Indian tax means 'previous year' as defined in the Income-tax Act, 1961 (43 of 1961);

 

(d)        the terms "a Contracting State" and "the other Contracting State" mean the United Kingdom or India, as the context requires;

 

(e)        the term "person" includes an individual, a company and any other body of persons;

 

(f)        the term "company" means any body corporate or any entity which is treated as a company or body corporate for tax purposes;

 

(g)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

 

(h)        the term "competent authority" means, in the case of the United Kingdom the Commissioners of Inland Revenue or their authorised representative, and in the case of India the Central Government in the Department of Revenue;

 

(i)         the term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State except when the ship or aircraft is operated solely between places in the other Contracting State; and

 

(j)         the term "Government" means the Government of a Contracting State or a political sub-division or a local authority thereof. In relation to the United Kingdom the term "political sub-division" shall include Northern Ireland.

 

2. As regards the application of this Convention by a Contracting State any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes which are the subject of this Convention.

 

ARTICLE IV: Fiscal domicile.--1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

 

2. Where by reason of the provisions of paragraph 1 of this article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:

 

(a)        he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

 

(d)        if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 of this article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.

 

ARTICLE V: Permanent establishment.--1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" shall include especially:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        premises used as a sales outlet or for receiving or soliciting orders;

            (g)        a warehouse in relation to a person providing storage facilities for others;

            (h)        a mine, quarry or other place of extraction of natural resources;

            (i)         an installation of structure used for the exploration of natural resources;

(j)         a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity, continues for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment.

 

3. The term "permanent establishment" shall not be deemed to include:

 

(a)        the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

 

(b)        the maintenance of a fixed place of business solely belonging to the enterprise solely for the purpose of storage or display;

 

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

 

(d)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

 

(e)        the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being activities solely of a preparatory or auxiliary character in the trade or business of the enterprise. However, this provision shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purpose or purposes other than the purposes specified in this paragraph.

 

4. A person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State--other than an agent of an independent status to whom paragraph 5 of this article applies--shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if:

 

(a)        he has and habitually exercises in that State, an authority to negotiate and enter into contracts for or on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or

 

(b)        he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which he regularly delivers goods or merchandise for or on behalf of the enterprise.

 

5. An enterprise of Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, if the activities of such an agent are carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it) he shall not be considered to be an agent of an independent status for the purposes of this paragraph.

 

6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

 

ARTICLE VI: Income from immovable property.--1. Income from immovable property may be taxed in the Contracting State in which such property is situated.

 

(a)        The term "immovable property" shall, subject to the provisions of sub-paragraph (b) of this paragraph be defined in accordance with the law of the Contracting State in which the property in question is situated.

 

(b)        The term "immovable property" shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 of this article shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 of this article shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of professional services.

 

ARTICLE VII: Business profits.--1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

 

2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In so far as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 of this article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this article.

 

4          (a)        In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses of the enterprise which are incurred for the purposes of the permanent establishment, including only those executive and general administrative expenses incurred, whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated:

 

Provided that where the law of the Contracting State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that Contracting State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other Contracting State so requests, the provisions of this sub-paragraph shall be amended by Protocol to reflect such terms.

 

(b)        However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way or royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the permanent establishment. Likewise, no account shall be taken in the determination of the profits of a permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment of the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the head office of the enterprise or any of its other offices.

 

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

 

6. Where profits include items of income which are dealt with separately in other articles of this Convention, then the provisions of those articles shall not be affected by the provisions of this article.

 

ARTICLE VIII: Air transport.--1. Income derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting State shall not be taxed in the other Contracting State.

 

2. The provisions of paragraph 1 of this article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport.

 

3. For the purposes of this article:

 

(a)        interest on funds connected with the operation of aircraft in international traffic shall be regarded as income from the operation of such aircraft; and

 

(b)        the term "operation of aircraft" shall include transportation by air of persons, livestock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation.

 

4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.

 

ARTICLE IX: Shipping.--1. Income of an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that State.

 

2. Notwithstanding the provisions of paragraph 1 of this article such income may be taxed in the other Contracting State from which it is derived provided that:

 

(a)        the income is in respect of any one or more of the first ten fiscal years for which this Convention has effect; and

 

(b)        the tax chargeable on that income shall be 50 per cent of the tax which would have been chargeable in the absence of this Convention in respect of the income for the first five fiscal years for which this Convention has effect and 25 per cent of such tax for the next following five years.

 

3. The provisions of paragraphs 1 and 2 of this article shall not apply to income from journeys between places which are situated in a Contracting State.

 

4. For the purposes of this article income from the operation of ships includes income derived from the rental on a bareboat basis of ships if such rental income is incident  to the income described in paragraph 1 of this article.

 

5. Notwithstanding the provisions of Article 7 (Business profits), the provisions of paragraphs 1, 2 and 3 of this article shall likewise apply to income of an enterprise of a Contracting State from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise.

 

6. The provisions of this article shall apply also to income derived from participation in a pool,  a joint business or an international operating agency.

 

7. Gains derived by an enterprise of a Contracting State from the alienation of ships or containers owned and operated by the enterprise shall be taxed only in that State if either the income from the operation of the alienated ships or containers was taxed only in that State, or the ships or containers are situated outside the other Contracting State at the time of the alienation.

 

ARTICLE X: Associated enterprises.--Where--

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or

 

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

ARTICLE XI: Dividends.--1. (a) A dividend paid by a company which is a resident of the United Kingdom to a resident of India may be taxed in India.

 

(b)        Where under paragraph 2 of the article, a resident of India is entitled to a tax credit in respect of that dividend, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom on the aggregate of the amount or value of the dividend and amount of the tax credit, at a rate not exceeding 15 per cent.

 

(c)        Except as provided in sub-paragraph (b) of this paragraph, a dividend derived from a company which is a resident of the United Kingdom by a resident of India, who is the beneficial owner of that dividend shall be exempt from any tax in the United Kingdom which is chargeable on dividends.

 

2. A resident of India who receives a dividend from a company which is a resident of the United Kingdom shall, subject to the provisions of paragraph 3 of this article and provided he is the beneficial owner of the dividend, be entitled to the tax credit in respect of that dividend which an individual resident in the United Kingdom would have been entitled to had he received that dividend, and to the payment of any excess of that tax credit over his liability to United Kingdom tax.

 

3. Paragraph 2 of this article shall not apply where the beneficial owner of the dividend is a company which either alone or together with one or more associated companies controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend. For this purpose two companies shall be deemed to be associated if one is controlled directly or indirectly by the other, or both are controlled directly or indirectly by a third company.

 

4. A dividend paid by a company which is a resident of India to a resident of the United Kingdom may be taxed in the United Kingdom. The dividend may also be taxed in India but, where the dividend relates in whole or in part to a new contribution, the Indian tax so charged shall not exceed 15 per cent of the gross amount of the dividend attributable to the new contribution.

 

5. The preceding paragraphs of this article shall not affect the taxation of the company in respect of the profits out of which the dividend is paid.

 

6. The provisions of paragraphs 1, 2 and 3 or, as the case may be, paragraph 4 of this article shall not apply if the beneficial owner of the dividend, being a resident of a Contracting State, has in the other Contracting State of which the company paying the dividend is a resident a permanent establishment or fixed base with which the holding by virtue of which the dividend is paid is effectively connected. In such a case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services), as the case may be, shall apply.

 

7. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State.

 

8. As used in this article the term "dividend" means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights treated in the same manner as income from shares by the taxation law of the State of which the company making the distribution is a resident and any other item (other than interest which falls within the provisions of Article 12) treated as a dividend or distribution under that law.

 

9. As used in paragraph 4 of this article the term "new contribution" means any share capital, other than bonus shares, issued after the date of entry into force of this Convention by a company which is a resident of India, and beneficially owned by a resident of the United Kingdom.

 

ARTICLE XII: Interest.--1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest and it is paid in respect of a loan or debt first created after the date of entry into force of this Convention, the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

 

3. Notwithstanding the provisions of paragraph 2 of this article:

 

(a)        where the interest is paid to a bank carrying on a bona fide banking business which is a resident of the other Contracting State and is the beneficial owner of the interest, the tax charged in the Contracting State in which the interest arises shall not exceed 10 per cent of the gross amount of the interest;

 

(b)        where the interest is paid to the Government of one of the Contracting State or a political sub-division or local authority of that State or the Reserve Bank of India, if shall not be subject to tax by the State in which it arises.

 

4. The term "interest" as used in this article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures.

 

5. The provisions of paragraphs 1, 2 and 3 of this article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated   therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services), as the case may be, shall apply.

 

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by that permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

7. Where, owing to a special relationship between the payer and some other person, the amount of the interest paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

 

ARTICLE XIII: Royalties and fees for technical services.--1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; provided that where the royalties or fees for technical services are paid to a resident of the other Contracting State who is the beneficial owner thereof and they are paid in respect of a right or property which is first granted, or under a contract which is signed, after the date of entry into force of this Convention, the tax so charged shall not exceed 30 per cent of the gorss amount of the royalties or fees for technical services.

 

3. The term "royalties" as used in this article means payments of any kind including rentals received as a consideration for the use of, or the right to use:

 

(a)        any patent, trademark, design or model, plan, secret formula or process;

 

(b)        industrial, commercial or scientific equipment, or information concerning industrial, commercial or scientific experience; and

 

(c)        any copyright of literary, artistic or scientific work, cinematographic films, and films or tapes for radio or television, broadcasting,

 

but does not include royalties or other amounts paid in respect of the operation of mines or quarries or of the extraction or removal of natural resources.

 

4. The term "fees for technical services" as used in this article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent personal services), in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel.

 

5. The provisions of paragraphs 1 and 2 of this article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services), as the case may be, shall apply.

 

6. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to make the payments was incurred and the payments are borne by that permanent establishment or fixed base, then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

7. Where, owing to a special relationship between the payer and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this article shall apply only to last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

 

ARTICLE XIV: Capital gains.--Except as provided in Article 8 (Air transport) and Article 9 (Shipping) of this Convention, each Contracting State may tax capital gains in accordance with the provision of its domestic law.

 

ARTICLE XV: Independent personal services.--1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if:

 

(a)        he is present in that other State for a period or periods aggregating 90 days in the relevant fiscal year; or

 

(b)        he has a fixed base regularly available to him in that other State for the purpose of performing his activities;

 

but in each case only so much of the income as is attributable to those services.

 

2. The term "professional services" includes independent scientific, literary, artistic educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

 

ARTICLE XVI: Dependent personal services.--1. Subject to the provisions of Article 17 (Directors' fees), Article 18 (Artistes and athletes), Article 19 (Government remuneration and pensions), Article 20 (Students and trainees) and Article 21 (Teachers), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall  be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1 of this article, remuneration derived by a resident of the United Kingdom in respect of an employment exercised in India shall not be taxed in India if:

 

(a)        he is present in India for a period or periods not exceeding in the aggregate 183 days during the relevant fiscal year;

            (b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of India; and

(c)        the remuneration is not deductible in computing the profits of an enterprise chargeable to Indian tax.

 

3. Notwithstanding the provisions of paragraph 1 of this article remuneration derived by a resident of India in respect of an employment exercised in the United Kingdom shall not be taxed in the United Kingdom if:

 

(a)        he is present in the United Kingdom for a period or periods not exceeding in the aggregate 183 days during the relevant fiscal year;

 

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of the United Kingdom; and

 

(c)        the remuneration is not deductible in computing the profits of an enterprise chargeable to United Kingdom tax.

 

4. Notwithstanding the preceding provisions of this article, remuneration in respect of an employment exercised aboard a ship or aircraft in international traffic may be taxed in the Contracting State of which the person deriving the profits from the operation of the ship or aircraft is a resident.

 

ARTICLE XVII: Directors' fees.--Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

ARTICLE XVIII: Artistes and athletes.--1. Notwithstanding the provisions of Article 15 (Independent personal services) and Article 16 (Dependent personal services), income derived by entertainers (such as stage, motion picture, radio or television artistes and musicians) or athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.

 

2. Where income arising from personal activities as such exercised in a Contracting State by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Article 7 (Business profits), Article 15 (Independent personal services) and Article 16 (Dependent personal services), be taxed in that Contracting State.

 

3. The provisions of paragraphs 1 and 2 of this Article shall not apply if the visit to Contracting State of the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public  funds of the other Contracting State, including a political sub-division or local authority of that other State.

 

ARTICLE XIX: Governmental remuneration and pensions.--1. Remuneration, other than a pension, paid by the Government of India to any individual who is a national of India in respect of services rendered in the discharge of governmental functions in the United Kingdom shall be exempt from United Kingdom tax.

 

2. Remuneration, other than a pension, paid by the Government of the United Kingdom to any individual who is a national of the United Kingdom in respect of services rendered in the discharge of governmental functions in India shall be exempt from Indian tax.

 

3. Any pension paid by the Government of a Contracting State to any individual in respect of services rendered to that Government shall be taxable only in that Contracting State.

 

4. The provisions of this article shall not apply to remuneration or pensions in respect of services rendered in connection with any trade or business.

 

ARTICLE XX: Students and trainees.--1. An individual who is a resident of a Contracting State or was resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State for the primary purpose of:

 

(a)        studying at a university or other accredited or recognised educational institution in that other Contracting State; or

(b)        securing training required to qualify him to practise a profession or a professional speciality; or

(c)        studying or doing research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary or educational organisation;

 

shall not be subject to tax by that other Contracting State in respect of:

 

(i)         gifts from abroad for the purposes of his maintenance, education, study, research or training;

            (ii)        the grant, allowance, or award; and

(iii)       income from personal services rendered in that other Contracting State (other than any rendered by an articled clerk or other person undergoing professional training to the persons or partnership to whom he is articled or who is providing the training) not exceeding the sum of 750 pounds sterling or its equivalent in Indian currency during any fiscal year.

 

2. The exemptions under paragraph 1 of this article shall only extend for such period of time as may be reasonably or customarily required for the purpose of the visit, but in no event shall any individual have the benefit of paragraph 1 of this article for more than 5 years.

 

3. An individual who is a resident of a Contracting State or was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State for a period not exceeding 12 months,  as an employee on or under contract with a resident of the first-mentioned Contracting State, for the primary purpose of:

 

(a)        acquiring technical, professional or business experience from a person other than that resident of the first-mentioned Contracting State; or

(b)        studying at a university or other accredited or recognised educational institution in that other Contracting State,

 

shall not be subject to tax by that other Contracting State on his income from personal services performed in the other Contracting State for that period in an amount not exceeding 1,500 pounds sterling or its equivalent in Indian currency.

 

4. An individual who is a resident of Contracting State or was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in that other State for a period not exceeding 12 months as a participant in a programme sponsored by the Government of the other Contracting State, for the primary purpose of training, research or study, shall not be subject to tax by that other Contracting State in respect of payments made by the Government of the first-mentioned Contracting State for the purposes of his maintenance, training, research or study.

 

ARTICLE XXI: Teachers.--1. An individual who visits a Contracting State for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognised educational institution in that State, and who was immediately before that visit a resident of the other Contracting State, shall be exempted from tax by the first-mentioned Contracting State on any remuneration for such teaching or research for a period not exceeding two years from the date he first visits that State for such purpose.

 

2. This article shall only apply to income from research if such research is undertaken by the individual in the public interest and not primarily for the benefit of some other private person or persons.

 

ARTICLE XXII: Elimination of double taxation.--1. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):

 

(a)        Indian tax payable under the laws of India and in accordance with the provisions of this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within India (excluding, in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Indian tax is computed.

 

(b)        In the case of a dividend paid by a company which is a resident of India to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account (in addition to an Indian tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph) the Indian tax payable by the company in respect of the profits out of which such dividend is paid:

 

Provided that this paragraph shall not apply to a company which is a resident of the United Kingdom and is a Petroleum Company as defined for the purposes of Schedule 9 to the Oil Taxation Act, 1975.

 

2. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax payable in a territory outside India (which shall not affect the general principle hereof), the amount of United Kingdom tax payable, under the laws of the United Kingdom and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in respect of income from sources within the United Kingdom which has been subjected to tax both in India and the United Kingdom shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. In no case shall credit for United Kingdom tax be given against the additional income-tax on undistributed income of companies.

 

For the purposes of the credit referred to in this paragraph, where the resident of India is a company by which surtax is payable, the credit to be allowed against Indian tax shall be allowed in the first instance against the income-tax payable by the company in India and, as to the balance if any, against the surtax payable by it in India.

 

3. For the purposes of paragraph 1 of the article the term "Indian tax payable" shall be deemed to include any amount which would have been payable as Indian tax but for deduction allowed in computing the taxable income or an exemption or reduction of tax granted for that year under:

 

(a)        sections 10(4), 10(4A), 10(6)(viia), 10(15)(vi), 32A, 33A, 35B, 35CC, 80HH, 80J and 80K of the Income-tax Act, 1961 (43 of 1961), so far as they were in force on and have not been modified since the date of signature of this Convention or have been modified only in minor respects so as not to affect their general character; or

 

(b)        any other provision which may subsequently be made granting an exemption or reduction from tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character:

 

Provided that relief from United Kingdom tax shall not be given by virtue of this paragraph in respect of income from any source if the income relates to a period starting more than 10 fiscal years after the exemption from, or reduction of, Indian tax is first granted to the resident of the United Kingdom or to the resident of India, as the case may be, in respect of that source.

 

4. Income which in accordance with the provisions of this Convention is not to be subjected to tax in a Contracting State may be taken into account for calculating the rate of tax to be imposed in that Contracting State on other income.

 

5. For the purposes of paragraphs 1 and 2 of this article profits, income and chargeable gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the provisions of this Convention shall be deemed to arise from sources in that other Contracting State.

 

6. Where profits on which an enterprise of a Contracting State has been charged to tax in that State are also included in the profits of an enterprise of the other State and the profits so included are profits which would have accrued to that enterprise of the other State, if the conditions made between the enterprises had been those which would have been made between enterprises dealing wholly independently with each other, the amount included in the profits of both enterprises shall be treated for the purposes of this article as income from a source in the other State of the enterprise of the first-mentioned State and relief shall be given accordingly under the provisions of paragraph 1 or paragraph 2 of this article.

 

7. For the purposes of this article the term "in accordance with the provisions of this Convention" shall include taxes which are the subject of this Convention and imposed on income not expressly mentioned in the Convention.

 

ARTICLE XXIII: Non-discrimination.--1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of this other State in the same circumstances are or may be subjected.

 

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances or under the same conditions. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first-mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first-mentioned Contracting State, nor as being in conflict with the provisions of paragraph 4 of Article 7 of this Convention.

 

3. Nothing contained in this article shall be construed as obliging a Contracting State to grant to individuals not resident in that State any personal allowances, reliefs and reductions for taxation purposes which are by law available only to individuals who are so resident.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.

 

5. In this article, the term "taxation" means taxes which are the subject of this Convention.

 

ARTICLE XXIV: Mutual agreement procedure.--1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

 

ARTICLE XXV: Exchange of information.--The competent authorities of the Contracting States shall exchange such information (being information and documents which are at their disposal under their respective taxation laws and obtained in the normal course of administration) as is necessary for carrying out the provisions of this Convention or for the prevention of fraud or the administration of statutory provisions against legal avoidance in relation to the taxes which are the subject of this Convention. Any information or documents so exchanged shall be treated as secret but may be disclosed to persons (including a court or administrative body) concerned with assessment, collection, enforcement or prosecution in respect of taxes which are the subject of this Convention. No information or documents shall be exchanged which would disclose any trade, business, industrial or professional secret or any trade process.

 

ARTICLE XXVI: Diplomatic and consular officials.--1. Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rule of international law or under the provisions of special agreements.

 

2.         Notwithstanding the provisions of paragraph 1 of Article 4 (Fiscal domicile), an individual who is a member of the diplomatic consular or permanent mission of a Contracting State which is situated in the other Contracting State and who is subject to tax in that other State only if he derives income from sources therein, shall not be deemed to be a resident of that other State for the purposes of this Convention.

ARTICLE XXVII: Entry into force.--Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:

 

(a)        in the United Kingdom of Great Britain and Northern Ireland:

 

(i)         in respect of income-tax and capital gains tax, for any year of assessment beginning on or after 6 April in the calendar year next following that in which the later of the notifications is given;

(ii)        in respect of corporation tax, for any financial year beginning on or after 1 April in the calendar year next following that in which the later of the notifications is given;

(iii)       in respect of petroleum revenue tax, for any chargeable period beginning on or after 1 January in the calendar year next following that which the later of the notifications is given;

(iv)       in respect of development land tax, for any realised development value accruing on or after 1 April in the calendar year next following that in which the later of the notifications is given:

 

(b)        in India, in respect of income arising in any fiscal year beginning on  or after the first day of April next following the calendar year in which the later of the notifications is given.

 

ARTICLE XXVIII: Termination.--This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through, the diplomatic channel, by giving, notice of termination at least six months before the end of any calendar year beginning after the expiration of ten years from the date of entry into force of the Convention, in such event, the Convention shall cease to have effect:

 

(a)        in the United Kingdom of Great Britain and Northern Ireland;

 

(i)         in respect of income-tax and capital gains tax, for any year of assessment beginning on or after 6 April in the calendar year next following that in which the notice is given;

(ii)        in respect of corporation tax, for any financial year beginning on  or after 1 April in the calendar year next following that in which the notice is given;

(iii)       in respect of petroleum revenue tax, for any chargeable period beginning on or after 1 January in calendar year next following that in which the notice is given; and

(iv)       in respect of development land tax, for any realised development value accruing on or after 1 April in the calendar year next following that in which the notice is given;

 

(b)        in India, in respect of income arising in any fiscal year beginning on or after the first day of April next following the calendar year in which the notice is given.

 

In witness whereof the undersigned duly authorised thereto by their respective Governments have signed this Convention.

 

Done on this 16th day of April, 1981 in New Delhi in two original copies each in the Hindi and English languages, both the texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one.

 

For the Government of

The United Kingdom of

Great Britain and

 

For the Government of India :                                                                      Northern Ireland :

G. Ramachandran                                                                                          J. A. Thomson

 

UNITED KINGDOM

 

Agreement between the Government of India and the Government of United Kingdom for the avoidance of double taxation and the prevention of fiscal evasion with respect to duties on the estates of deceased persons

Notification No. 21 E.D., dated the 2 April, 1956

 

In pursuance of the Explanation to section 30 of the Estate Duty Act, 1953 (XXXIV of 1953), the Central Government hereby declares the United Kingdom of Great Britain and Northern Ireland to be a reciprocating country for the purposes of the said Act.

 

In exercise of the powers conferred by Section 30 of the Estate Duty Act, 1953 (XXXIV of 1953), the Central Government hereby fixes the 30th June, 1956, as the date on which the Agreement, dated the 3rd April, 1956, entered into between the Government of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and prevention of fiscal evasion with respect to duties on the estates of deceased persons and annexed hereto shall come into force.

 

ANNEXURE

 

The Government of India and Government of the United Kingdom of Great Britain and Northern Ireland, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to duties on the estates of deceased persons, have agreed as follows:

 

ARTICLE I: The duties which are the subject of the present Agreement are--

 

(a)        In India, the estate duty imposed under the Estate Duty Act, 1953 (No. 34 of 1953), and

            (b)        In the United Kingdom, the estate duty imposed in Great Britain.

 

ARTICLE II: (1) In the present Agreement, unless the context otherwise requires:

 

(a)        the term 'India' means all the States and territories in the Union of India;

            (b)        The term 'United Kingdom' means Great Britain and Northern Ireland;

(c)        The term 'Great Britain' means England, Wales and Scotland and does not include the Channel Islands and the Isle of Man;

(d)        The term 'Territory' when used in relation to one of the other Contracting Government means India or Great Britain, as the context requires;

(e)        The term 'duty' means the estate duty imposed in India or the estate duty imposed in Great Britain as the context requires.

 

(2) For the purposes of the present Agreement, the question whether a deceased person was at the time of his death domiciled in any part of the territory of one of the Contracting Governments shall be determined in accordance with the law in force in that territory.

 

(3) In the application of the provisions of the present Agreement by either Contracting Government, any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the law of that Contracting Government relating to duty.

 

ARTICLE III: (1) Subject to paragraph (2) of this article, duty shall not be imposed in India on the death of a person who was not domiciled at the time of his death in any part of India but was domiciled in some part of Great Britain on any property situate outside India :

 

Provided that nothing in this paragraph shall prevent the imposition of duty in India on--

 

(a)        any settled property of which the deceased was life tenant where the settlor was domiciled in India at the time the settlement took effect; or

 

(b)        property that passes under a disposition or devolution regulated by the law of some part of India.

 

(2) Nothing in the present Agreement shall affect any provision of the law of India imposing duty on shares in or debentures of a company incorporated outside India which carries on business in India and which has been treated for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), as resident in India for two out of the three completed assessments immediately preceding the death; nor shall anything in the present Agreement be considered to confer a right to a credit against duty so imposed for any duty imposed in Great Britain on any such shares or debentures.

 

(3) Duty shall not be imposed in Great Britain on the death of a person who was not domiciled at the time of his death in any part of Great Britain but was domiciled in some part of India on any property situate outside Great Britain:

 

Provided that nothing in this paragraph shall prevent the imposition of duty in Great Britain on any property which passes under a disposition or devolution regulated by the law of some part of Great Britain.

 

ARTICLE IV: (1) Subject to paragraph (2) of this article, where a person was at the time of his death domiciled in any part of the territory of one of the Contracting Governments, the situs of any property which for the purposes of duty passes or is deemed to pass on his death shall, for the purposes of the imposition of duty and of the credit to be allowed under Article 6, be determined exclusively in accordance with the rules in Article 5 of the present Agreement.

 

(2) Paragraph (1) of this article shall apply if, and only if, apart from the said article--

 

(a)        duty would be imposed on the property under the law of each of the Contracting Government; or

(b)        duty would be imposed on the property under the law of one of the Contracting Governments and would, but for some specific exemption, also be imposed thereon under the law of the other Contracting Government.

 

ARTICLE V: The rules referred to in paragraph (1) of Article 4 are:--

 

(a)        Rights or interests (otherwise than by way of security) in or over immovable property shall be deemed to be situated at the place where such property is located;

 

(b)        Rights or interests (otherwise than by way of security) in or over tangible movable property other than such property for which specific provision is hereinafter made, and in or over bank or currency notes, other forms of currency recognised as legal tender in the place of issue, negotiable bills of exchange and negotiable promissory notes, shall be deemed to be situated at the place where such property, notes, currency or documents are located at the time of death of the deceased person or if in transitu, at the place of destination.

 

(c)        Debts, secured or unsecured and whether under seal or not, excluding the forms of indebtedness for which specific provision is made therein, shall be deemed to be situated at the place where the debtor was residing at the time of death of the deceased person:

 

Provided that, if the interest on any such debt was chargeable to income-tax under the Indian Income-tax Act, 1922 (11 of 1922), as having accrued or arisen in India, the debt shall be deemed to be situated in India;

 

(d)        Bank accounts shall be deemed to be situated at the branch at which the account was kept;

 

(e)        Securities issued by any government or by any local or public authority shall be deemed, if in bearer form, to be situated at the place where they were located at the time of the deceased's death and if inscribed or registered, at the place of inscription or registration:

 

Provided that sterling securities issued by the Government of India or of any State in India, or by any local or public authority in India, shall be deemed to be situated in the territory in which the deceased was domiciled at the time of his death;

 

(f)        Shares, stock debentures or debentures stock in a company (including any such property held by a nominee, whether the beneficial ownership is evidenced by scrip certificates or otherwise) shall be deemed to be situated at the place where the company was incorporated;

 

(g)        Moneys payable under a policy of assurance or insurance, whether under seal or not, shall be deemed to be situated at the place where the policy provides that the moneys shall be payable or, in the absence of any such provision, at the head office of the company issuing the policy;

 

(h)        An interest in a partnership shall be deemed to be situated at the place where the business is carried on; and if the business is carried on at more than one place an appropriate proportion of the interest shall be deemed to be situated at each of those places;

 

(i)         Goodwill as a trade business of professional asset shall be deemed to be situated at the place where the trade, business or profession to which it pertains is carried on; and if a trade, business or profession is carried on at more than one place an appropriate proportion of the goodwill shall be deemed to be situated at each of those places;

 

(j)         Ships and aircraft and shares thereof shall be deemed to be situated at the place of registration of the ship or aircraft;

 

(k)       Patents, trade marks and designs shall be deemed to be situated at the place where they are registered;

 

(l)         Copyright, franchises and rights or licences to use any copyrighted material, patent trade mark or design shall be deemed to be situated at the place where the rights arising therefrom are exercisable;

 

(m)       Rights or causes of action ex-delicto surviving for the benefits of the estate of a deceased person shall be deemed to be situated at the place where such rights or causes of action arose;

 

(n)        A judgment-debt shall be deemed to be situated where the judgment is recorded:

 

Provided that where the judgment was given in proceedings instituted to enforce a debt which, had it passed on the death, would have fallen within paragraph (c) of this article, the judgment-debt shall be deemed to be situated where that debt would have been situated;

 

(o)        Any other right or interest shall--

 

(i)         Where the deceased person was domiciled at the date of his death in the territory of only one of the Contracting Governments, be deemed to be situated at the place determined by the law in force in the territory of the other Contracting Government;

 

(ii)        Where the deceased person was domiciled at the date of his death in the territory of both Contracting Governments, be deemed to be situated--

 

(aa)      for the purposes of the imposition of duty in India, at the place determined by the law in force in India, and

 

(bb)      for the purposes of the imposition of duty in Great Britain, at the place determined by the law in force in England or Scotland as the case may be.

 

ARTICLE VI: (1) Where one Contracting Government imposes duty on any property which is not situated in its territory but is situated in the territory of the other Contracting Government, the former Government shall allow against so much of its duty (as otherwise computed) as is attributable to that property a credit (not exceeding the amount of the duty so attributable) equal to so much of the duty imposed in the territory of the other Contracting Government as is attributable to such property.

 

(2) Where each Contracting Government imposes duty on any property which is situated--

 

(a)        in the territory of both Governments, or

            (b)        outside both territories,

 

each Government shall allow against so much of its duty (as otherwise computed) as is attributable to that property a credit which bears the same proportion to the amount of its duty so attributable or to the amount of the other Contracting Government's duty attributable to the same property, whichever is less, as the former amount bears to the sum of both amounts.

 

(3) For the purposes of this article, the amount of the duty of a Contracting Government attributable to any property shall be ascertained after taking into account any credit, allowance or relief, or any remission or reduction of duty, otherwise than in respect of duty payable in the territory of the other Contracting Government.

 

ARTICLE VII: (1) Any claim for a credit or for a refund of duty founded on the provisions of the present Agreement shall be made within six years from the date of death of the deceased person in respect of whose estate the claim is made, or, in the case of a reversionary interest where payment of duty is deferred until the date on which the interest falls into possession within six years from that date.

 

(2) Any such credit allowed or refund made shall be allowed or made without payment of interest on the amount credited or refunded.

 

ARTICLE VIII: (1) The taxation authorities of the Contracting Governments shall exchange such information (being information available under the respective taxation laws of the Contracting Governments) as is necessary for carrying out the provisions of the present Agreement or for the prevention of fraud or the administration of statutory provisions against legal avoidance in relation to the duties which are the subject of the present Agreement. Any information so exchanged shall be treated as secret and shall not be disclosed to any person other than those concerned with the administration, assessment and collection of the duties which are the subject of the present Agreement. No information shall be exchanged which might disclose any trade secret or trade process.

 

(2) As used in this article, the term 'taxation authorities' means--

 

(a)        in the case of India, the Central Board of Revenue or their authorised representative;

 

(b)        in the case of Great Britain, the Commissioners of Inland Revenue or their authorised representative;

 

(c)        in the case of Northern Ireland (to which the present Agreement applies under Article X), the Minister of Finance or his authorised representative; and

 

(d)        in the case of any territory to which the present Agreement is extended under Article IX, the competent authority for the administration in such territory of the duties to which the present Agreement applies.

 

ARTICLE IX: (1) The present Agreement may be extended, either in its entirety or with modifications, to any territory for whose international relations the United Kingdom is responsible and which imposes duties substantially similar in character to those which are the subject of the present Agreement, and any such extension, shall take effect from such date and subject to such modifications and conditions (including conditions as to termination) as may be specified and agreed between the Contracting Governments in notes to be exchanged for this purpose.

 

(2) The termination in respect of India or the United Kingdom of the present Agreement under Article XII shall, unless otherwise expressly agreed by the Contracting Governments, terminate the application of the Agreement to any territory to which it has been extended under this article.

 

ARTICLE X: The present Agreement shall apply in relation to the estate duty imposed in Northern Ireland as it applies in relation to the estate duty in Great Britain, but shall be separately terminable in respect of Northern Ireland by the same procedure as is laid down in Article XII.

 

ARTICLE XI: The present Agreement shall come into force on the date on which the last of all such things shall have been done in India and the United Kingdom as are necessary to give the Agreement the force of law in India and the United Kingdom respectively, and the Agreement shall be effective only as to--

 

(a)        the estates of persons dying on or after such date; and

(b)        the estate of any person dying before such date and after the 15th October, 1953, where the accountable person elects that the provisions of the present Agreement shall be applied to such estate.

 

ARTICLE XII: (1) The present Agreement shall remain in force for not less than three years after the date of its coming into force.

 

(2) If, not less than six months before the expiration such period of three years, neither of the Contracting Governments shall have given to the other Contracting Government written notice through diplomatic channels of its intention to terminate the present Agreement, the Agreement shall remain in force after such period of three years until either of the Contracting Governments shall have given written notice of such intention, in which event the present Agreement shall not be effective as to the estates of persons dying on or after the date (not being earlier than the sixtieth day after the date of such notice) specified in such notice, or, if no date is specified, on or after the sixtieth day after the date of such notice.

 

In witness whereof the undersigned, duly authorised thereto, have signed the present Agreement.

 

Done at New Delhi, in duplicate, the 3rd day of April, 1956.

 

For the Government of India                                                 For the Government of United

Sd/-                                                                                          Kingdom of Great Britain

Manilal C. Shah                                                                     and Northern Ireland.

Sd/-

 

Malcolm McDonald

 

 

 

UNITED STATES OF AMERICA

 

Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

Notification No. 8786 [F. No. 501/2/74-FTD], dated 20th December, 1990

 

G.S.R. 990(E).--Whereas the annexed Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has entered into force on the 18th December, 1990, after the notification by both the Contracting States to each other of the completion of the procedures required under their laws for bringing into force the said Convention in accordance with paragraph 1 of article 30 of the said Convention;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), and section 24A of the Companies (Profits) Surtax Act, 1964, (7 of 1964) the Central Government hereby directs that all the provisions of the said Convention shall be given effect to in the Union of India.

 

Further, in exercise of the powers conferred by section 44A(b) of the Wealth-tax Act, 1957 (27 of 1957) and section 44(b) of the Gift-tax Act, 1958 (18 of 1958), the Central Government also directs that the provisions of article 28 of the said Convention shall be given effect to in the Union of India.

 

ANNEXURE

 

Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

 

The Government of the United States of America and the Government of the Republic of India, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, have agreed as follows:

 

ARTICLE 1 : General scope.--1. This Convention shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in the Convention.

 

2. The Convention shall not restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded:

 

(a)        by the laws of either Contracting State; or

            (b)        by any other agreement between the Contracting States.

 

3. Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under article 4 (Residence), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect. For this purpose, the term "citizen" shall include a former citizen whose loss of citizenship had as one of its principle purposes the avoidance of tax, but only for a period of 10 years following such loss.

 

4. The provisions of paragraph 3 shall not affect--

 

(a)        the benefits conferred by a Contracting State under paragraph 2 of article 9 (Associated enterprises), under paragraphs 2 and 6 of article 20 (Private pensions, annuities, alimony and child support), and under articles 25 (Relief From Double Taxation), 26 (Non-Discrimination), and 27 (Mutual Agreement Procedure); and

 

(b)        the benefits conferred by a Contracting State under articles 19 (Remuneration and pensions in respect of Government service), 21 (payments received by students and apprentices), 22 (Payments received by professors, teachers and research scholars) and 29 (Diplomatic agents and consular officers), upon individuals who are neither citizens of, nor have immigrant status in, that State.

 

ARTICLE 2 : Taxes covered.--1. The existing taxes to which this Convention shall apply are:

 

(a)        in the United States, the federal income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax, the personal holding company tax, and social security taxes), and the excise taxes imposed on insurance premiums paid to foreign insurers and with respect to private foundations (hereinafter referred to as "United States tax"); provided, however, the Convention shall apply to the excise taxes imposed on insurance premiums paid to foreign insurers only to the extent that the risks covered by such premiums are not reinsured with a person not entitled to exemption from such taxes under this or any other Convention which applies to these taxes; and

 

(b)        in India:

 

(i)         the income-tax including any surcharge thereon, but excluding income-tax on undistributed income of companies, imposed under the Income-tax Act; and

 

(ii)        the surtax.

 

(hereinafter referred to as "Indian tax").

 

Taxes referred to in (a) and (b) above shall not include any amount payable in respect of any default or omission in relation to the above taxes or which represent a penalty imposed relating to those taxes.

 

2. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which have been made in their respective taxation laws and of any official published material concerning the application of the Convention.

 

ARTICLE 3 : General definitions.--1. In this Convention, unless the context otherwise requires:

 

(a)        the term "India" means the territory of India and includes the territorial sea and airspace above it, as well as any other maritime zone in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with international law;

 

(b)        the term "United States", when used in a geographical sense, means all the territory of the United States of America, including its territorial sea, in which the laws relating to United States tax are in force, and all the area beyond its territorial sea, including the seabed and subsoil thereof, over which the United States has jurisdiction in accordance with international law and in which the laws relating to United States tax are in force;

 

(c)        the terms " a Contracting State" and "the other Contracting State" mean India or the United States as the context requires;

 

(d)        the term "tax" means Indian tax or United States tax, as the context requires;

 

(e)        the term "person" includes an individual, an estate, a trust, a partnership, a company, any other body of persons, or other taxable entity;

 

(f)        the term "company" means any body corporate or any entity which is treated as a company or body corporate for tax purposes;

 

(g)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

 

(h)        the term "competent authority" means, in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorized representative, and in the case of the United States, the Secretary of the Treasury or his delegate;

 

(i)         the term "national" means any individual possessing the nationality or citizenship of a Contracting State;

 

(j)         the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places within the other Contracting State;

 

(k)       the term "taxable year" in relation to Indian tax means "previous year" as defined in the Income-tax Act, 1961.

 

2. As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the provisions of article 27 (Mutual Agreement Procedure, have the meaning which it has under the laws of that State concerning the taxes to which the Convention applies.

 

ARTICLE 4 : Residence.--1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature, provided however, that

 

(a)        this term does not include any person who is liable to tax in that State in respect only of income from sources in that State; and

 

(b)        in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries.

 

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, than his status shall be determined as follows:

 

(a)        he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

 

(b)        if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

 

(d)        if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

3. Where, by reason of paragraph 1, a company is a resident of both Contracting States, such company shall be considered to be outside the scope of this Convention except for purposes of paragraph 2 of article 10 (Dividends), article 26 (Non-discrimination), article 27 (Mutual agreement procedure), article 28 (Exchange of information and administrative assistance) and article 30 (Entry into force).

 

4. Where, by reason of the provisions of paragraph 1, a person other than an individual or a company is a resident of both Contracting States, the competent authorities of the Contracting States shall settle the question by mutual agreement and determine the mode of application of the Convention to such person.

 

ARTICLE 5 : Permanent establishment.--1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" includes especially:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources;

            (g)        a warehouse, in relation to a person providing storage facilities for others;

(h)        a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on;

(i)         a store or premises used as a sales outlet;

(j)         an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve-month period;

(k)       a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period;

(l)         the furnishing of services, other than included services as defined in article 12 (royalties and fees for included services), within a Contracting State by an enterprise through employees or other personnel, but only if:

(i)         activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve-month period; or

(ii)        the services are performed within that State for a related enterprise [within the meaning of paragraph 1 of article 9 (associated enterprises)].

 

3. Notwithstanding the preceding provisions of this article, the term "permanent establishment" shall be deemed not to include any one or more of the following:

 

(a)        the use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the enterprise;

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or occasional delivery;

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

(e)        the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise.

 

4. Notwithstanding the provisions of paragraphs 1 and 2, where a person--other than an agent of an independent status to whom paragraph 5 applies--is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if:

 

(a)        he has and habitually exercise in the first-mentioned State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph;

(b)        he has no such authority but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in that State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or

(c)        he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise.

 

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's-length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph.

 

6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

 

ARTICLE 6 : Income from immovable property (real property).--1. Income derived by a resident of a Contracting State from immovable property (real property), including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State.

 

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated.

 

3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

 

ARTICLE 7: Business profits.--1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment.

 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly at arm's length with the enterprise of which it is a permanent establishment and other enterprises controlling, controlled by or subject to the same common control as that enterprise. In any case where the correct amount of profits attributable to a permanent establishment is incapable of determination or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. The estimate adopted shall, however, be such that the result shall be in accordance with the principles contained in this article.

 

3. In the determination of the profits of permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including a reasonable allocation of executive and general administrative expenses, research and development expenses, interest, and other expenses incurred for the purposes of the enterprise as a whole (or the part thereof which includes the permanent establishment), whether incurred in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of banking enterprises, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than toward reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices.

 

4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

 

5. For the purposes of this Convention, the profits to be attributed to the permanent establishment as provided in paragraph 1(a) of this article shall include only the profits derived from the assets and activities of the permanent establishment and shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

 

6. Where profits include items of income which are dealt with separately in other articles of the convention, then the provisions of those articles shall not be affected by the provisions of this article.

 

7. For the purposes of the Convention, the term "business profits" means income derived from any trade or business including income from the furnishing of services other than included services as defined in article 12 (royalties and fees for included services) and including income from the rental of tangible personal property other than property described in paragraph 3(b) of article 12 (royalties and fees for included services).

 

ARTICLE 8 : Shipping and air transport.--1. Profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that State.

 

2. For the purposes of this article, profits from the operation of ships or aircraft in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including--

 

(a)        the sale of tickets for such transportation on behalf of other enterprises;

            (b)        other activity directly connected with such transportation; and

(c)        the rental of ships or aircraft incidental to any activity directly connected with such transportation.

 

3. Profits of an enterprise of a Contracting State described in paragraph 1 from the use, maintenance, or rental of containers (including trailers, barges, and related equipment for the transport of containers) used in connection with the operation of ships or aircraft in international traffic shall be taxable only in that State.

 

4. The provisions of paragraphs 1 and 3 shall also apply to profits from participation in a pool, a joint business, or an international operating agency.

 

5. For the purposes of this article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of article 11 (Interest) shall not apply in relation to such interest.

 

6. Gains derived by an enterprise of a Contracting State described in paragraph 1 from the alienation of ships, aircraft or containers owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.

 

ARTICLE 9 : Associated enterprises.--1 Where:

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which, but for those conditions would have accrued to one of the enterprises, but by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

2. Where a Contracting State includes in the profits of an enterprise of that State, and taxes accordingly, profits on which an enterprise of the other Contracting State has been charged to tax in that other State, and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

 

ARTICLE 10 : Dividends.--1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

 

(a)        15 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 per cent. of the voting stock of the company paying the dividends;

            (b)        25 per cent of the gross amount of the dividends in all other cases.

 

Sub-paragraph (b) and not sub-paragraph (a) shall apply in the case of dividends paid by a United States person which is a Regulated Investment Company. Sub-paragraph (a) shall not apply to dividends paid by a United States person which is a Real Estate Investment Trust, and sub-paragraph (b) shall only apply if the dividend is beneficially owned by an individual holding a less than 10 per cent interest in the Real Estate Investment Trust. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

 

3. The term "dividends" as used in this article means income from shares or other rights, not being debt-claims, participating in profits, income from other corporate rights which are subject to the same taxation treatment as income from shares by the taxation laws of the State of which the company making the distribution is a resident: and income from arrangements, including debt obligations, carrying the right to participate in profits, to the extent so characterised under the laws of the Contracting State in which the income arises.

 

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State, of which the company paying the dividends is a resident, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the dividends are attributable to such permanent establishment or fixed base. In such case the provisions of article 7 (Business Profits) or article 15 (Independent Personal Services), as the case may be shall apply.

 

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company except in so far as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

 

ARTICLE 11 : Interest.--1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:

 

(a)        10 per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company); and

 

(b)        15 per cent of the gross amount of the interest in all other cases.

 

3. Notwithstanding the provisions of paragraph 2 of this article, interest arising in a Contracting State:

 

(a)        and derived and beneficially owned by the Government of the other Contracting State, a political sub-division or local authority thereof, the Reserve Bank of India, or the Federal Reserve Bank of the United States, as the case may be, and such other institutions of either Contracting State as the competent authorities may agree pursuant to article 27 (Mutual Agreement Procedure);

 

(b)        with respect to loans or credits extended or endorsed:

 

(i)         by the Export Import Bank of the United States, when India is the first-mentioned Contracting State; and

(ii)        by the EXIM Bank of India, when the United States is the first-mentioned Contracting State; and

 

(c)        to the extent approved by the Government of that State, and derived and beneficially owned by any person, other than a person referred to in sub-paragraphs (a) and (b), who is a resident of the other Contracting State, provided that the transaction giving rise to the debt-claim has been approved in this behalf by the Government of the first-mentioned Contracting State;

 

shall be exempt from tax in the first-mentioned Contracting State.

 

4. The term "interest" as used in this Convention means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities, and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purposes of the Convention. However, the term "interest" does not include income dealt with in article 10 (Dividends).

 

5. The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and  the interest is attributable to such permanent establishment or fixed base. In such case the provisions of article 7 (Business Profits) or article 15 (Independent Personal Services, as the case may be, shall apply.

 

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself or a political sub-division, local authority, or resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention.

 

ARTICLE 12 : Royalties and fees for included services.--1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed:

 

(a)        in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this article [other than services described in sub-paragraph (b) of this paragraph]:

 

(i)         during the first five taxable years for which this Convention has effect,

 

(A)       15 per cent of the gross amount of the royalties or fees for included services as defined in this article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub-division or a public sector company; and

 

(B)       20 per cent of the gross amount of the royalties or fees for included services in all other cases; and

 

(ii)        during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and

 

(b)        in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this article, 10 per cent of the gross amount of the royalties or fees for included services.

 

3. The term "royalties" as used in this article means:

 

(a)        payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof; and

 

(b)        payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8.

 

4. For purposes of this article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services:

 

(a)        are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or

 

(b)        make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.

 

5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid:

 

(a)        for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a);

 

(b)        for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic;

 

(c)        for teaching in or by educational institutions;

 

(d)        for services for the personal use of the individual or individuals making the payment; or

 

(e)        to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services).

 

6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case the provisions of article 7 (Business Profits) or article 15 (Independent Personal Services), as the case may be, shall apply.

 

7 (a) Royalties and fees for included services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for included services are borne by such permanent establishment or fixed base, then such royalties or fees for included services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

(b) Where under sub-paragraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State.

 

8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for included services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention.

 

ARTICLE 13 : Gains.--Except as provided in article 8 (Shipping and Air Transport) to this Convention, each Contracting State may tax capital gains in accordance with the provisions of its domestic law.

 

ARTICLE 14 : Permanent establishment tax.--1. A company which is a resident of India may be subject in the United States to a tax in addition to the tax allowable under the other provisions of this Convention.

 

(a)        Such tax, however, may be imposed only on:

 

(i)         the portion of the business profits of the company subject to tax in the United States which represents the dividend equivalent amount; and

 

(ii)        the excess, if any, of interest deductible in the United States in computing the profits of the company that are subject to tax in the United States and either attributable to a permanent establishment in the United States or subject to tax in the United States under article 6 (Income from Immovable Property [Real Property)], article 12 (Royalties and Fees for Included Services) as fees for included services, or article 13 (Gains) of this Convention over the interest paid by or from the permanent establishment or trade or business in the United States.

 

(b)        For purposes of this article, business profits means profits that are effectively connected (or treated as effectively connected) with the conduct of a trade or business within the United States and are either attributable to a permanent establishment in the United States or subject to tax in the United States under article 6 (Income from Immovable Property (Real Property), article 12 (Royalties and Fees for Included Services) as fees for included services or article 13 (Gains) of this Convention.

 

(c)        The tax referred to in sub-paragraph (a) shall not be imposed at a rate exceeding:

 

(i)         the rate specified in paragraph 2(a) of article 10 (Dividends) for the tax described in sub-paragraph (a)(i); and

 

(ii)        the rate specified in paragraph 2(a) or (b) (whichever is appropriate) of article 11 (Interest) for the tax described in sub-paragraph (a)(ii).

 

2. A company which is a resident of the United States may be subject to tax in India at a rate higher than that applicable to the domestic companies. The difference in the tax rate shall not, however, exceed the existing difference of 15 percentage points.

 

3. In the case of a banking company which is a resident of the United States, the interest paid by the permanent establishment of such a company in India to the head office may be subject in India to a tax in addition to the tax imposable under the other provisions of this Convention at a rate which shall not exceed the rate specified in paragraph 2(a) of article 11 (Interest).

 

ARTICLE 15 : Independent personal services.--1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State:

 

(a)        if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities, in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or

(b)        if the persons stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.

 

2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

 

ARTICLE 16 : Dependent personal services.--1. Subject to the provisions of articles 17 (Director's Fees), 18 (Income Earned by Entertainers and Athletes), 19 (Remuneration and Pensions in respect of Government Service), 20 (Private Pensions, Annuities, Alimony and Child Support), 21 (Payments Received by Students and Apprentices and 22 (Payments Received by Professors, Teachers and Research Scholars), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

 

(a)        the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant taxable year;

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

(c)        the remuneration is not borne by a permanent establishment or a fixed base or a trade or business which the employer has in the other State.

 

3. Notwithstanding the preceding provisions of this article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operating in international traffic by an enterprise of a Contracting State may be taxed in that State.

 

ARTICLE : 17 Directors fees.--Director's fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

 

ARTICLE 18 : Income earned by entertainers and athletes.--1. Notwithstanding the provisions of articles 15 (Independent Personal Services) and 16 (Dependant Personal Services), income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State except where the amount of the net income derived by such entertainer or athlete from such activities (after deduction of all expenses incurred by him in connection with his visit and performance) does not exceed one thousand five hundred United States dollars ($ 1,500) or its equivalent in Indian rupees for the taxable year concerned.

 

2. Where income in respect of activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete but to another person, that income of that other person may, notwithstanding the provisions of articles 7 (Business Profits), 15 (Independent Personal Services) and 16 (Dependent Personal Services), be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised unless the entertainer, athlete or other person establishes that neither the entertainer or athlete nor persons related thereto participate directly or indirectly in the profits of that other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions, or other distributions.

 

3. Income referred to in the preceding paragraphs of this article derived by a resident of a Contracting State in respect of activities exercised in the other Contracting State shall not be taxed in that other State if the visit of the entertainers or athletes to that other State is supported wholly or substantially from the public funds of the Government of the first-mentioned Contracting State, or of a political sub-division or local authority thereof.

 

4. The competent authorities of the Contracting States may, by mutual agreement, increased the dollar amounts referred to in paragraph 1 to reflect economic or monetary developments.

 

ARTICLE 19 : Remuneration and pensions in respect of government service.--1(a) Remuneration, other than a pension paid by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that State who:

 

(i)         is a national of that State; or

            (ii)        did not become a resident of that State solely for the purpose of rendering the services.

 

2. (a) Any pension paid by, or out of funds created by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

(b) However, such pension shall be taxable only in that other Contracting State if the individual is a resident of and a national of, that State.

 

3. The provisions of article 16 (Dependant Personal Services), 17 (Directors' Fees) 18 (Income Earned by Entertainers and Athletes) and 20 (Private Pensions, Annuities, Alimony and Child Support) shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by Contracting State or a political sub-division or a local authority thereof.

 

ARTICLE 20 : Private pensions, annuities, alimony and child support.--1. Any pension, other than a pension referred to in article 19 (Remuneration and Pensions in respect of Government Service), or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned Contracting State.

 

2. Notwithstanding paragraph 1, and subject to the provisions of article 19 (Remuneration and Pensions in respect of Government Service), social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

 

3. The term "pension" means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.

 

4. The term "annuity" means stated sums payable periodically at stated times during life or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration in money or money's worth (but not for services rendered).

 

5. Alimony paid to a resident of a Contracting State shall be taxable only in that State. The term "alimony" as used in this paragraph means periodic payments made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support, which payments are taxable to the recipient under the laws of the State of which he is a resident.

 

6. Periodic payments for the support of a minor child made pursuant to a written separation agreement or a decree of divorce, separate maintenance or compulsory support, paid by a resident of a Contracting State to a resident of the other Contracting State shall be taxable only in the first-mentioned State.

 

ARTICLE 21 : Payments received by students and apprentices.--1. A student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in that other State principally for the purpose of his education or training shall be exempt from tax in that other State, on payments which arise outside that other State for the purposes of his maintenance, education or training.

 

2. In respect of grants, scholarships and remuneration from employment not covered by paragraph 1, a student or business apprentice described in paragraph 1 shall, in addition, be entitled during such education or training to the same exemptions, reliefs or reductions in respect of taxes available to residents of the State which he is visiting.

 

3. The benefits of this article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken.

 

4. For the purposes of this article, an individual shall be deemed to be resident of a Contracting State if he is resident in that Contracting State in the taxable year in which he visits the other Contracting State or in the immediately preceding taxable year.

 

ARTICLE 22 : Payments received by professors, teachers and research scholars.--1. An individual who visits a Contracting State for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognised educational institution in that State, and who was immediately before that visit a resident of the other Contracting State, shall be exempted from tax by the first-mentioned Contracting State on any remuneration for such teaching or research for a period not exceeding two years from the date he first visits that State for such purpose.

 

2. This article shall apply to income from research only if such research is undertaken by the individual in the public interest and not primarily for the benefit of some other private person or persons.

 

ARTICLE 23 : Other income.--1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Convention shall be taxable only in that Contracting State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of article 6 (Income from Immovable Property (Real Property), if the beneficial owner of the income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the income is attributable to such permanent establishment or fixed base. In such case, the provisions of article 7 (Business Profits) or article 15 (Independent Personal Services), as the case may be, shall apply.

 

3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention and arising in the other Contracting State may also be taxed in that other State.

 

ARTICLE 24 : Limitation on benefits.--1. A person (other than an individual) which is a resident of a Contracting State and derives income from the other Contracting State shall be entitled under this Convention to relief from taxation in that other Contracting State only if:

 

(a)        more than 50 per cent of the beneficial interest in such person (or in the case of a company, more than 50 per cent of the number of shares of each class of the company's shares) is owned, directly or indirectly, by one or more individual residents of one of the Contracting States, one of the Contracting States or its political sub-divisions or local authorities, or other individuals subject to tax in either Contracting State on their world wide incomes, or citizens of the United States; and

 

(b)        the income of such person is not used in substantial part, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons who are not residents of one of the Contracting States, one of the Contracting State or its political sub-divisions or local authorities, or citizens of the United States.

 

2. The provisions of paragraph 1 shall not apply if the income derived from the other Contracting State is derived in connection with, or is incidental to, the active conduct by such person of a trade or business in the first-mentioned State (other than the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company).

 

3. The provisions of paragraph 1 shall not apply if the person deriving the income is a company which is a resident of a Contracting State in whose principal class of shares there is substantial and regular trading on a recognized stock exchange. For purposes of the preceding sentence, the terms "recognized stock exchange" means:

 

(a)        in the case of the United States, the NASDAQ System owned by the National Association of Securities Dealers, Incorporated and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Act of 1934;

 

(b)        in the case of India, any stock exchange which is recognised by the Central Government under the Securities Contract Regulation Act, 1956; and

 

(c)        any other stock exchange agreed upon by the competent authorities of the Contracting States.

 

4. A person that is not entitled to the benefits of this Convention pursuant to the provisions of the preceding paragraphs of the article may, nevertheless, be granted the benefits of the Convention if the competent authority of the State in which the income in question arises so determines.

 

ARTICLE 25 : Relief from double taxation.--1. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income:

 

(a)        the income-tax paid to India by or on behalf of such citizen or resident; and

 

(b)        in the case of a United States company owning at least 10 per cent of the voting stock of a company which is a resident of India and from which the United States company receives dividends, the income-tax paid to India by or on behalf of the distributing company with respect to the profits out of which the dividends are paid.

 

For the purposes of this paragraph, the taxes referred to in paragraphs 1(b) and 2 of article 2 (Taxes Covered) shall be considered as income-taxes.

 

2. (a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States.

 

(b) Further, where such resident is a company by which a surtax is payable in India, the deduction in respect of income-tax paid in the United States shall be allowed in the first instance from income-tax payable by the company in India and as to the balance, if any, from surtax payable by it in India.

 

3. For the purposes of allowing relief from double taxation pursuant to this article, income shall be deemed to arise as follows:

 

(a)        income derived by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention (other than solely by reason of citizenship in accordance with paragraph 3 of article 1 (General Scope) shall be deemed to arise in that other State;

 

(b)        income derived by a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with the Convention shall be deemed to arise in the first-mentioned State.

 

Notwithstanding the preceding sentence, the determination of the source of income for purposes of this article shall be subject to such source rules in the domestic laws of the Contracting States as apply for the purpose of limiting the foreign tax credit. The preceding sentence shall not apply with respect to income dealt with in article 12 (Royalties and Fees for Included Services). The rules of this paragraph shall not apply in determining credits against United States tax for foreign taxes other than the taxes referred to in paragraphs 1(b) and 2 of article 2 (Taxes Covered).

 

ARTICLE 26 : Non-discrimination.--1. Nationals of Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. The provisions shall apply to persons who are not resident of one or both of the Contracting States.

 

2. Except where the provisions of paragraphs 3 of article 7 (Business Profits) apply, the taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowance, reliefs, and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

 

3. Except where the provisions of paragraph 1 of article 9 (Associated Enterprises), paragraph 7 of article 11 (Interest), or paragraph 8 of article 12 (Royalties and Fees for Included Services) apply, interest, royalties and other disbursements paid by a resident of a Contracting State to a resident of the other Contracting State shall, for the purposes of determining the taxable profits of the first-mentioned resident, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

 

5. Nothing in this article shall be construed as preventing either Contracting State from imposing the taxes described in article 14 (Permanent Establishment Tax) or the limitations described in paragraph 3 of article 7 (Business Profits).

 

ARTICLE 27: Mutual agreement procedure.--1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or national. This case must be presented within three years of the date of receipt of notice of the action which gives rise to taxation not in accordance with the Convention.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits or other procedural limitations in the domestic law of the Contracting States.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for a the Convention.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. The competent authorities, through consultations, shall develop appropriate bilateral procedure, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this article. In addition, a competent authority may devise appropriate unilateral procedures, conditions, methods and techniques to facilitate the above-mentioned bilateral actions and the implementation of the mutual agreement procedure.

 

ARTICLE 28 : Exchange of information and administrative assistance.--1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention in particular, for the prevention of fraud or evasion of such taxes. The exchange of information is not restricted by article 1 (General Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State. However, if the information is originally regarded as secret in the transmitting State, it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention. Such persons or authorities shall use the information only for such purposes, but may disclose the information in public court proceedings or in judicial decisions. The competent authorities shall, through consultation, develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchange of information shall be made, including, where appropriate, exchange of information regarding tax avoidance.

 

2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases or otherwise. The competent authorities of the Contracting States shall agree from time to time on the list of information or documents which shall be furnished on a routine basis.

 

3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

 

(a)        to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

 

(b)        to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

 

(c)        to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (order public).

 

4. If information is requested by a Contracting State in accordance with this article, the other Contracting State shall obtain the information to which the request relates in the same manner and in the same form as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall provide information under this article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts and writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.

 

5. For the purposes of this article, the Convention shall apply, notwithstanding the provisions of article 2 (Taxes Covered):

 

(a)        in the United States, to all taxes imposed under title 26 of the United States Code; and

 

(b)        in India, to the income-tax, the wealth-tax and the gift-tax.

 

ARTICLE 29 : Diplomatic agents and consular officers.--Nothing in this Convention shall affect the fiscal privileges of diplomatic agents or consular officers under the general rules of international law or under the provisions of special agreements.

 

ARTICLE 30 : Entry into force.--1. Each Contracting State shall notify the other Contacting State in writing, through diplomatic channels, upon the completion of their respective legal procedures to bring this Convention into force.

 

2. The Convention shall enter into force on the date of the latter of such notifications and its provisions shall have effect:

 

(a)        in the United States:

 

(i)         in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January next following the date on which the Convention enters into force;

(ii)        in respect of other taxes, for taxable periods beginning on or after the first day of January next following the date on which the Convention enters into force; and

 

(b)        in India, in respect of income arising in any taxable year beginning on or after the first day of April next following the calendar year in which the Convention enters into force.

 

ARTICLE 31 : Termination.--This Convention shall remain in force indefinitely but either of the Contracting States may, on or before the thirtieth day of June in any calendar year beginning after the expiration of a period of five years from the date of the entry into force of the Convention, give the other Contracting State through diplomatic channels, written notice of termination and, in such event, this Convention shall cease to have effect:

 

(a)        in the United States

 

(i)         in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January next following the calendar year in which notice of termination is given; and

(ii)        in respect of other taxes, for taxable periods beginning on or after the first day of January next following the calendar year in which the notice of termination is given; and

 

(b)        in India, in respect of income arising in any taxable year beginning on or after the first day of April next following the calendar year in which the notice of termination is given.

 

In witness whereof, the undersigned, being duly authorised by their respective Governments, have signed this Convention.

 

Done at New Delhi in duplicate, this 12th day of September, 1989, in the English and Hindi languages, both texts being equally authentic. In case of divergence between the two texts the English text shall be the operative one.

 

For the Government of the Republic of India,                                 For the Government of the

(Sd.) N K Sengupta                                                                            United States of America,

 

Secretary to the Government of India.                                 (Sd.) John R Hubbard, Ambassador.

 

PROTOCOL

 

At the signing today of the Convention between the United States of America and the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, the undersigned have agreed upon the following provisions, which shall form an integral part of the Convention:

 

I. Ad article 5 :

 

It is understood that where an enterprise of a Contracting State has a permanent establishment in the other Contracting State in accordance with the provisions of paragraphs 2(j), 2(k) or 2(1) of article 5 (Permanent Establishment), and the time period referred to in that paragraph extends over two taxable years, a permanent establishment shall not be deemed to exist in a year, if any, in which the use, site, project or activity, as the case may be, continues for a period or periods aggregating less than 30 days in that taxable year. A permanent establishment will exist in the other taxable year, and the enterprise will be subject to tax in that other Contracting State in accordance with the provisions of article 7 (Business Profits), but only on income arising during that other taxable year.

 

II. Ad article 7 :

 

Where the law of the Contracting State in which a permanent establishment is situated imposes, in accordance with the provisions of paragraph 3 of article 7 (Business Profits), a restriction on the amount of executive and general administrative expenses which may be allowed as a deduction in determining the profits of such permanent establishment, it is understood that in making such a determination of profits the deduction in respect of such executive and general administrative expenses in no case shall be less than that allowable under the Indian Income-tax Act as on the date of signature of this Convention.

 

III. Ad articles 7,  10, 11, 12, 15 and 23 :

 

It is understood that for the implementation of paragraphs 1 and 2 of article 7 (Business Profits), paragraph 4 of article 10 (Dividends), paragraph 5 of article 11 (Interest), paragraph 6 of article 12 (Royalties and Fees for Included Services), paragraph 1 of article 15 (Independent Personal Services), and paragraph 2 of article 23 (Other Income), any income attributable to a permanent establishment or fixed base during its existence is taxable in the Contracting State in which such permanent establishment or fixed base is situated even if the payments are deferred until such permanent establishment or fixed base has ceased to exist.

 

IV. Ad article 12 :

 

It is understood that fees for included services, as defined in paragraph 4 of article 12 (Royalties and Fees for Included Services) will, in accordance with United States law, be subject to income tax in the United States based on net income and, when earned by a company, will also be subject to the taxes described in paragraph 1 of article 14 (Permanent Establishment Tax). The total of these taxes which may be imposed on such fees, however, may not exceed the amount computed by multiplying the gross fee by the appropriate tax rate specified in sub-paragraph (a) or (b), whichever is applicable, of paragraph 2 of article 12.

 

V. Ad article 14 :

 

It is understood that references in paragraph 1 of article 14 (Permanent Establishment tax) to profits that are subject to tax in the United States under article 6 [Income from Immovable Property (Real Property)], under article 12 (Royalties and Fees for Included Services), as fees for included services as defined in that article, or under article 13 (Gains) of this Convention, are intended to refer only to cases in which the profits in question are subject to United States tax based on net income (i.e., by virtue, of being effectively connected, or being treated as effectively connected, with the conduct of a trade or business in the United States). Any income which is subject to tax under those articles based on gross income is not subject to tax under article 14.

 

In witness whereof, the undersigned, being duly authorised by their respective Governments, have signed this Protocol.

 

Done at New Delhi in duplicate, this 12th day of September, 1989, in the English and Hindi languages, both texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one.

 

For the Government of the Republic of India,                     For the Government of the

(Sd.) N K Sengupta                                                                United States of America,

 

Secretary to the Government of India.                                 (Sd.) John R Hubbard, Ambassador.

 

Embassy of United States of America

 

New Delhi, September 12, 1989

 

Excellency,

 

I have the honour to refer to the Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect of taxes on income which was signed today (hereinafter referred to as "the Convention") and to confirm, on behalf of the Government of the United States of America, the following understanding reached between the two Governments:

Both sides agree that a tax sparing credit shall not be provided in article 25 (Relief from Double Taxation) of the Convention at this time. However, the Convention shall be promptly amended to incorporate a tax sparing credit provision if the United States hereafter amends its laws concerning the provision of tax sparing credits, or the United States reaches agreement on the provision of a tax sparing credit with any other country.

 

Both sides also agree that, for purposes of paragraph 4(c) of article 5 (Permanent Establishment) of the Convention, a person shall be considered to habitually secure orders in a Contracting State, wholly or almost wholly for an enterprise, only if:

 

1.         such person frequently accepts orders for goods or merchandise on behalf of the enterprise;

 

2.         substantially all of such person's sales-related activities in the Contracting State consist of activities for the enterprise;

 

3.         such person habitually represents to persons offering to buy goods or merchandise that acceptance of an order by such person constitutes the agreement of the enterprise to supply goods or merchandise under the terms and conditions specified in the order; and

 

4.         the enterprise takes actions that give purchasers the basis for a reasonable belief that such person has authority to bind the enterprise.

 

I have the honour to request Your Excellency to confirm the foregoing understandings of Your Excellency's Government.

 

Accept, Excellency, the renewed assurances of my highest consideration.

 

His Excellency                                                                                   (Sd) John R Hubbard,

Dr N K Sengupta,                                                                                          Ambassador.

Secretary (Revenue),

Ministry of Finance,

 

New Delhi

 

Secretary

 

Government of India

 

Ministry of Finance

 

(Department of Revenue)

 

New Delhi, September 12, 1989

 

Excellency,

 

I have the honour to acknowledge receipt of Your Excellency's Note of today's date, which reads as follows:

 

I have the honour to refer to the Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income which was signed today (hereinafter referred to as "the Convention") and to confirm, on behalf of the Government of the United States of America, the following understandings reached between the two Governments:

 

Both sides agree that a tax sparing credit shall not be provided in article 25 (Relief from Double Taxation) of the Convention at this time. However, the Convention shall be promptly amended to incorporate a tax sparing credit provision if the United States hereafter amends its laws concerning the provision of tax sparing credits, or the United States reaches agreement on the provision of a tax sparing credit with any other country.

 

Both sides also agree that, for purposes of paragraph 4(c) of article 5 (Permanent Establishment) of the Convention, a person shall be considered to habitually secure orders in a Contracting State, wholly or almost wholly for an enterprise, only if:

 

1.         such person frequently accepts orders for goods or merchandise on behalf of the enterprise;

 

2.         substantially all of such person's sales-related activities in the Contracting State consist of activities for the enterprise;

 

3.         such person habitually represents to persons offering to buy goods or merchandise that acceptance of an order by such persons constitutes the agreement of the enterprise to supply goods or merchandise under the terms and conditions specified in the order; and

 

4.         the enterprise takes actions that give purchasers the basis for a reasonable belief that such person has authority to bind the enterprise.

 

I have the honour to confirm the understandings contained in your Excellency's note on behalf of the Government of the Republic of India.

 

Accept, Excellency, the renewed assurances of my highest consideration.

 

His Excellency           (Sd.)

 

Dr John R Hubbard,  N K Sengupta

Ambassador of the United States of America

 

New Delhi

 

Embassy of the United States of America

 

New Delhi, September 12, 1989

 

Excellency,

 

I have the honour to refer to the Convention signed today between the United States of America and the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to inform you on behalf of the United States of America of the following:

 

During the course of the negotiations leading to conclusion of the Convention signed today, the negotiators developed and agreed upon a memorandum of understanding intended to give guidance both to the taxpayers and the tax authorities of our two countries in interpreting aspects of article 12 (Royalties and Fees for Included Services) relating to the scope of included services. This memorandum of understanding represents the current views of the United States Government with respect to these aspects of article 12, and it is my Government's understanding that it also represents the current views of the Indian Government. It is also my Government's view that as our Governments gain experience in administering the Convention, and particularly article 12, the competent authorities may develop and publish amendments to the memorandum of understanding and further understandings and interpretations of the Convention.

 

If this position meets with the approval of the Government of the Republic of India, this letter and your reply thereto will indicate that our Governments share a common view of the purpose of the memorandum of understanding relating to article 12 of the Convention.

 

Accept, Excellency, the renewed assurances of my highest consideration.

 

His Excellency                                                                                   (Sd.)

Dr. N K Sengupta,                                                                 John R Hubbard,

Secretary (Revenue),                                                            Ambassador.

Ministry of Finance, 

New Delhi      

Government of India

Ministry of Finance

 

(Department of Revenue)

New Delhi, September 12, 1989

 

Excellency,

 

I have the honour to acknowledge receipt of Your Excellency's Note of today's date, which reads as follows:

 

"I have the honour to refer to the Convention signed today between the United States of America and the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to inform you on behalf of the United States of America of the following:

During the course of the negotiations leading to conclusion of the Convention signed today, the negotiators developed and agreed upon a memorandum of understanding intended to give guidance both to the taxpayers and the tax authorities of our two countries in interpreting aspects of article 12 (Royalties and Fees for Included Services) relating to the scope of included services. This memorandum of understanding represents the current views of the United States Government with respect to these aspects of article 12, and it is my Government's understanding that it also represents the current views of the Indian Government. It is also my Government's view that as our Governments gain experience in administering the Convention, and particularly article 12, the competent authorities may develop and publish amendments to the memorandum of understanding and further understandings and interpretations of the Convention.

 

If this position meets with the approval of the Government of the Republic of India, this letter and your reply thereto will indicate that our Governments share a  common view of the purpose of the memorandum of understanding relating to article 12 of the Convention."

I have the honour to confirm the understandings contained in Your Excellency's Note, on behalf of the Government of the Republic of India.

Accept, Excellency, the renewed assurances of my highest consideration.

 

His Excellency                                               (Sd.)

Dr John R Hubbard,                                      N K Sengupta

Ambassador of the    

United States of America,    

New Delhi.     

US-INDIA TAX TREATY

 

May 15, 1989

 

Memorandum of understanding concerning fees for included services in article 12

 

Paragraph 4 (in general)

 

This memorandum describes in some detail the category of services defined in paragraph 4 of article 12 (Royalties and Fees for Included Services). It also provides examples of services intended to be covered within the definition of included services and those intended to be excluded, either because they do not satisfy the tests of paragraph 4, or because, notwithstanding the fact that they meet the tests of paragraph 4, they are dealt with under paragraph 5. The examples in either case are not intended as an exhaustive list but rather as illustrating a few typical cases. For ease of understanding, the examples in this memorandum describe US persons providing services to Indian persons, but the rules of article 12 are reciprocal in application.

 

Article 12 includes only certain technical and consultancy services. By technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it.

 

Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services.

 

Paragraph 4(a)

 

Paragraph 4(a) of article 12 refers to technical or consultancy services that are ancillary and subsidiary to the application or enjoyment of any right, property, or information for which a payment described in paragraph 3(a) or (b) is received. Thus, paragraph 4(a) includes technical and consultancy services that are ancillary and subsidiary to the application or enjoyment of an intangible for which a royalty is received under a licence or sale as described in paragraph 3(a), as well as those ancillary and subsidiary to the application or enjoyment of industrial, commercial, or scientific equipment for which a royalty is received under a lease as described in paragraph 3(b).

 

It is understood that, in order for a service fee to be considered "ancillary and subsidiary" to the application or enjoyment of some right, property, or information for which a payment described in paragraph 3(a) or (b) is received, the service must be related to the application or enjoyment of the right, property or information. In addition, the clearly predominant purpose of the arrangement under which the payment of the service fee and such other payment are made must be the application or enjoyment of the right, property, or information described in paragraph 3. The question of whether the service is related to the application or enjoyment of the right, property, or information described in paragraph 3 and whether the clearly predominant purpose of the arrangement is such application or enjoyment must be determined by reference to the facts and circumstances of each case. Factors which may be relevant to such determination (although not necessarily controlling) including:

 

1.         the extent to which the services in question facilitate the effective application or enjoyment of the right, property, or information described in paragraph 3;

 

2.         the extent to which such services are customarily provided in the ordinary course of business arrangements involving royalties described in paragraph 3;

 

3.         whether the amount paid for the services (or which would be paid by parties operating at arm's length) is an insubstantial portion of the combined payments for the services and the rights, property, or information described in paragraph 3;

 

4.         whether the payment made for the services and the royalty described in paragraph 3 are made under a single contract (or a set of related contracts); and

 

5.         whether the person performing the services is the same person as, or a related person to, the person receiving the royalties described in paragraph 3 (for this purpose, persons are considered related if their relationship is described in article 9 (Associated Enterprises) or if the person providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties).

 

To the extent that services are not considered ancillary and subsidiary to the application or enjoyment of some right, property, or information for which a royalty payment under paragraph 3 is made, such services shall be considered "included services" only to the extent that they are described in paragraph 4(b).

 

Example (1)

 

Facts

 

A US manufacturer grants rights to an Indian company to use manufacturing processes in which the transferor has exclusive rights by virtue of process patents or the protection otherwise extended by law to the owner of a process. As part of the contractual arrangement, the US manufacturer agrees to provide certain consultancy services to the Indian company in order to improve the effectiveness of the latter's use of the processes. Such services include, for example the provision of information and advice on sources of supply for materials needed in the manufacturing process, and on the development of sales and service literature, for the manufactured product. The payments allocable to such services do not form a substantial part of the total consideration payable under the contractual arrangement. Are the payments for these services fees for "included services"?

 

Analysis

 

The payments are fees for included services. The services described in this example are ancillary and subsidiary to the use of a manufacturing process protected by law as described in paragraph 3(a) of article 12 because the services are related to the application or enjoyment of the intangible and the granting of the right to use the intangible is the clearly predominant purpose of the arrangement. Because the services are ancillary and subsidiary to the use of the manufacturing process, the fees for these services are considered fees for included services under paragraph 4(a) of article 12, regardless of whether the services are described in paragraph 4(b).

 

Example (2)

 

Facts

 

An Indian manufacturing company produces a product that must be manufactured under sterile conditions using machinery that must be kept completely free of bacterial or other harmful deposits. A US company has developed a special cleaning process for removing such deposits from that type of machinery. The US company enters into a contract with the Indian company under which the former will clean the latter's machinery on a regular basis. As part of the arrangement, the US company leases to the Indian company a piece of equipment which allows the Indian company to mesure the level of bacterial deposits on its machinery in order for it to know when cleaning is required. Are the payments for the services fees for included services?

 

Analysis

 

In this example, the provision of cleaning services by the US company and the rental of the monitoring equipment are related to each other. However, the clearly predominant purpose of the arrangement is the provision of cleaning services. Thus, although the cleaning services might be considered technical services, they are not "ancillary and subsidiary" to the rental of the monitoring equipment. Accordingly, the cleaning services are not "included services" within the meaning of paragraph 4(a).

 

Paragraph 4(b)

 

Paragraph 4(b) of article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.

 

Typical categories of services that generally involve either the development and transfer of technical plans or technical designs, or making technology available as described in paragraph 4(b), include:

 

1.         engineering services (including the sub-categories of bio-engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical and industrial engineering);

 

2.         architectural services; and

 

3.         computer software development.

 

Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for example, relate to any of the following areas:

 

1.         bio-technical services;

            2.         food-processing;

            3.         environmental and ecological services;

            4.         communication through satellite or otherwise;

            5.         energy conservation;

            6.         exploration or exploitation of mineral oil or natural gas;

            7.         geological surveys;

            8.         scientific services; and

            9.         technical training.

 

The following examples indicate the scope of the conditions in paragraph 4(b):

 

Example (3)

 

Facts

 

A US manufacturer has experience in the use of a process for manufacturing wall board for interior walls of houses which is more durable than standard products of its type. An Indian builder wishes to produce this product for its own use. It rents a plant and contracts with the US company to send experts to India to show engineers in the Indian company how to produce the extra-strong wall board. The US contractors work with the technicians in the Indian firm for a few months. Are the payments to the US firm considered to be payments for "included services"?

 

Analysis

 

The payments would be fees for included services. The services are of a technical or consultancy nature; in the example, they have elements of both types of services. The services make available to the Indian company technical knowledge, skill and processes.

 

Example (4)

 

Facts

 

A US manufacturer operates a wall board fabrication plant outside India. An Indian builder hires the US company to produce wall board at that plant for a fee. The Indian company provides the raw materials and the US manufacturer fabricates the wall board in its plant, using advanced technology. Are the fees in this example payments for included services?

 

Analysis

 

The fees would not be for included services. Although the US company is clearly performing a technical service no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plan or design. The US company is merely performing a contract manufacturing service.

 

Example (5)

 

Facts

 

An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel around the countryside selling the company's wares. The company wants to modify its software to permit the salesmen to assess the company's central computers for information on what products are available in inventory and when they can be delivered. The Indian firm hires a US computer programming firm to modify its software for this purpose. Are the fees which the Indian firm pays treated as fees for included services?

 

Analysis

 

The fees are for included services. The US company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer program) which it has developed.

 

Example (6)

 

Facts

 

An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the US company to modify the formulas which it uses so as to eliminate the cholesterol, and to train the employees of the Indian company in applying the new formulas. Are the fees paid by the Indian company for included services?

 

Analysis

 

The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company.

 

Example (7)

 

Facts

 

The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world-wide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services?

 

Analysis

 

The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company and technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b).

 

Paragraph 5

 

Paragraph 5 of article 12 describes serveral categories of services which are not intended to be treated as included services even if they satisfy the tests of paragraph 4. Set forth below are example of cases where fees would be included under paragraph 4, but are excluded because of the conditions of paragraph 5.

 

Example (8)

 

Facts

 

An Indian company purchases a computer from a US computer manufacturer. As part of the purchase agreement, the manufacturer agrees to assist the Indian company in setting up the computer and installing the operating system, and to ensure that the staff of the Indian company is able to operate the computer. Also, as part of the purchase agreement, the seller agrees to provide, for a period of ten years, any updates to the operating system and any training necessary to apply the update. Both of these service elements to the contract would qualify under paragraph 4(b) as an included service. Would either or both be excluded from the category of included services, under paragraph 5(a), because they are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of the computer ?

 

Analysis

 

The installation assistance and initial training are ancillary and subsidiary to the sale of the computer, and they are also inextricably and essentially linked to the sale. The computer would be of little value to the Indian purchaser without these services, which are most readily and usefully provided by the seller. The fees for installation assistance and initial training, therefore, are not fees for included services, since these services are not the predominant purpose of the arrangement.

 

The services of updating the operating system and providing associated necessary training may well be ancillary and subsidiary to the sale of computer, but they are not inextricably and essentially linked to the sale. Without the updates, the computer will continue to operate as it did when purchased, and will continue to accomplish the same functions. Acquiring the updates, cannot, therefore, be said to be inextricably and essentially linked to the sale of the computer.

 

Example (9)

 

Facts

 

An Indian hoospital purchases an X-ray machine from a US manufacturer. As part of the purchase agreement, the manufacturer agrees to install the machine, to perform an initial inspection of the machine in India, to train hospital staff in the use of the machine, and to service the machine periodically during the usual warranty period (2 years). Under an optional service contract purchased by the hospital, the manufacturer also agrees to perform certain other services throughout the life of the machine, including periodic inspections and repair services, advising the hospital about developments in X-ray film or techniques which could improve the effectiveness of the machine, and training hospital staff in the application of those new developments, the cost of the initial installation, inspection, training and warranty service is relatively minor as compared with the cost of the X-ray machine. Its any of the services described here ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of the X-ray machine?

 

Analysis

 

The initial installation, inspection and training services in India and the periodic service during the warranty period are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of the X-ray machine because the usefulness of the machine to the hospital depends on this service, the manufacturer has full responsibility during this period, and the cost of the services is a relatively minor component of the contract. Therefore, under paragraph 5(a) these fees are not fees for included services, regardless of whether they otherwise would fall within paragraph 4(b).

 

Neither the post-warranty period inspection and repair services, nor the advisory and training services relating to new developments are "inextricably and essentially linked" to the initial purchase of the X-ray machine. Accordingly, fees for these services may be treated as fees for included services if they meet the tests of paragraph 4(b).

 

Example (10)

 

Facts

 

An Indian automobile manufacturer decides to expand into the manufacture of helicopters. It sends a group of engineers from its design staff to a course of study conducted by the Massachusetts Institute of Technology (MIT) for two years to study aeronautical engineering. The Indian firm pays tuition fees to MIT on behalf of the firm's employees. It is the tuition fee a fee for an included service within the meaning of article 12 ?

 

Analysis

 

The tuition fee is clearly intended to acquire a technical service for the firm. However, the fee paid is for teaching by an education institution, and is, therefore under paragraph 5(c), not an included service. It is irrelevant for this purpose whether MIT conducts the course on its campus or at some other location.

 

Example (11)

 

Facts

 

As in example (10), the automobile manufacturer wishes to expand into the manufacture of helicopters. It approaches an Indian university about establishing a course of study in aeronautical engineering. The university contracts with a US helicopter manufacturer to send an engineer to be a visiting professor of aeronautical engineering on its faculty for a year. Are the amounts paid by the university for these teaching services fees for included services?

 

Analysis

 

The fees are for teaching in an educational institution. As such, pursuant to paragraph 5(c), they are not fees for included services.

 

Example (12)

 

Facts

 

An Indian wishes to instal a computerized system in his home to control lighting, heating and air conditioning, a stereo sound system and a burglar and fire alarm system. He hires an American electrical engineering firm to design the necessary wiring system, adapt standard software, and provide instructions for installations. Are the fees paid to the American firm by the Indian individual fees for included services?

 

Analysis

 

The services in respect of which the fees are paid are of the type which would generally be treated as fees for included services under paragraph 4(b). However, because the services are for the personal use of the individual making the payment, under paragraph 5(d), the payments would not be fees for included services.

 

 

UNITED STATES OF AMERICA

 

Agreement between the Government of India and the Government of the United States of America through exchange of letters for the avoidance of double taxation of income of enterprises operating aircraft

 

Notification No. 1564 [F. No. 501/2/74-FTD], dated 26 November, 1976

 

G.S.R. 899(E).--Whereas the Government of India and the Government of the United States of America have concluded an Agreement through exchange of letters as set out in the Annexure hereto, for the avoidance of double taxation of income of enterprises operating aircraft;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India.

 

ANNEXURE

 

Embassy of the United States of

 

America, New Delhi,

 

November 26, 1976

 

Excellency,

 

I have the honour to refer to the conversations which were recently conducted between representatives of the Government of the United States of America and the representatives of the Government of India relating to the possibility of concluding an Agreement between the two Governments with a view to granting the international airlines of the two countries exemption from tax on their earnings on the basis of reciprocity, and to inform you that the Government of the United States of America agrees as follows:

 

(1) The Government of the United States of America shall on the basis of reciprocal exemption granted by the Government of India to citizens of the United States of America and to corporations organized in the United States of America, exclude from gross income and exempt from income-tax all earnings derived

 

(a)        by a corporation organised in India, or

            (b)        by an individual who is:

 

(i)         a citizen of India, and

                        (ii)        a non-resident alien as to the United States of America,

 

from the operation of aircraft in international traffic. For this purpose, the term "operation of aircraft" shall mean the business of transportation by air of persons, livestock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft and any other activity directly connected with such transportation.

 

The exemption herein provided shall also apply in respect of participation in pools of any kind regarding air transport.

 

For the removal of doubts, it is clarified that interest on funds connected with the operation of aircraft in international traffic shall be regarded as income from the operation of such aircraft.

 

(2) This Agreement shall be applicable with respect to taxable years beginning on or after the first day of January, 1976.

 

(3) Either of the two Governments may terminate this Agreement by giving to the other Government six months prior notice of termination in writing and, in such event, the Agreement shall cease to be effective for the taxable years beginning on or after the first day of January next following the expiration of the six months period.

 

(4) The Government of the United States of America will consider this Note, together with your reply confirming that the Government of India agrees to terms corresponding to those outlines, above, as constituting an Agreement between the two Governments, entering into force on the date of your reply.

 

I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

 

(Sd.) David T. Schneider

 

Charge d' Affaires ad interim

 

His Excellency

 

Shri S.R. Mehta,

 

Additional Secretary to

 

the Government of India

 

Government of India

 

Department of Revenue and Banking

 

New Delhi

 

November 26, 1976

 

Excellency,

 

I have the honour to acknowledge the receipt of Your Excellency's Note of today's date which reads as follows:

 

"I have the honour to refer to the conversations which were recently conducted between representatives of the Government of the United States of America and the representatives of the Government of India relating to the possibility of concluding an Agreement between the two Governments with a view to granting the international airlines of the two countries exemption from tax on their earnings on the basis of reciprocity, and to inform you that the Government of the United States of America agrees as follows:

 

(1) The Government of the United States of America shall, on the basis of reciprocal exemption granted by the Government of India to citizens of the United States of America and to corporations organized in the United States of America exclude from gross income and exempt from income-tax all earnings derived

 

(a)        by a corporation organized in India, or

 

(b)        by an individual who is,

 

(i)         a citizen of India, and,

                        (ii)        a non-resident alien as to the United States of America,

 

from the operation of aircraft in international traffic. For this purpose, the term "operation or aircraft" shall mean the business of transportation by air of persons, livestock goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft and any other activity directly connected with such transportation.

 

The exemption herein provided shall also apply in respect of participation in pools of any kind regarding air transport.

 

For the removal of doubts, it is clarified that interest on funds connected with the operation of aircraft in international traffic shall be regarded as income from the operation of such aircraft.

 

(2) This Agreement shall be applicable with respect to taxable years beginning on or after the first day of January, 1976.

 

(3) Either of the two Governments may terminate this Agreement by giving to the other Government six months prior notice of termination in writing and, in such event, the Agreement shall cease to be effective for the taxable years beginning on or after the first day of January next following the expiration of the six months period.

 

(4) The Government of the United States of America will consider this Note, together with your reply confirming that the Government of India agrees to terms corresponding to those outlined above, as constituting an agreement between the two Governments entering into force on the date of your reply."

 

I have the honour to confirm that the Government of India agrees, on the basis of reciprocity to grant exemption from income-tax and surtax on income derived:

 

(a)        by a corporation organized in the United States of America, or

(b)        by an individual who is:

 

(i)         a citizen of the United States of America; and

                        (ii)        non-resident in India

 

from the operation of aircraft in international traffic. The term "taxable year" in relation to India shall mean "previous year" as defined in the Income-tax Act, 1961 (43 of 1961).

 

I have further the honour to confirm on behalf of the Government of India the understandings outlined in Our Excellency's Note and to agree that Your Excellency's Note and my reply thereto shall constitute an Agreement between the two Governments.

 

I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration.

 

His  Excellency Mr. David T. Schneider      (Sd-)

Charge d' Affaires                                         S.R. Mehta

Embassy of the United States of       Additional Secretary to

 

America, New Delhi   the Government of India

 

UNITED STATES OF AMERICA

 

Agreement with the Government of United States of America modifying the agreement for the avoidance of double taxation of income of enterprises operating aircraft

 

Notification No. 501/2/74- FTD, dated 18 April, 1980

 

G.S.R. 223(E).--Whereas the Government of India and the Government of the United States of America have concluded an Agreement through exchange of letters as set out in the Annexure hereto for the modification of the Agreement entered into by the said Governments, for the avoidance of double taxation of income of enterprises operating aircraft;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964) the Central Government hereby directs that the provisions of the said Agreement shall be given effect to in the Union of India.

 

ANNEXURE

 

Embassy of the United States of America

 

New Delhi, India

 

December 27, 1976

 

Mr. S. R. Mehta, Chairman,

 

Central Board of Direct Taxes,

 

Ministry of Finance,

 

North Block,

 

New Delhi,

 

Dear Mr. Mehta,

 

On November 26, 1976 we exchanged letters concerning a reciprocal airline tax exemption. In this connection the text of the U.S. Note does not make a specific reference to the aircraft registration requirement contained in sections 872(b)(2) and 883(a)(2) of the U.S. Internal Revenue Code of 1954, as amended, though it had been intended that these requirements be covered by the Note.

 

For this reason we wish by this letter, to confirm the U.S. statutory requirement that the aircraft, income from the operation of which is exempt from U.S. income-tax, be registered in  India, which grants an equivalent exemption to U.S. corporations and to U.S. citizens non-resident in India in respect of income from the operation of aircraft registered in the United States.

 

I would be most grateful if you would kindly confirm this letter so as to meet the statutory requirements of the U.S. Internal Code.

 

Sincerely,

 

Sd./-

 

(David T. Schneider

 

Charge d' Affaires ad interim

 

S. R. Mehta,

 

Chairman

 

Central Board of

 

Direct Taxes

 

New Delhi, the 29th December, 1976

 

Dear Mr. Schneider,

 

This is to acknowledge receipt of your letter dated December 27, 1976, regarding the Agreement between the Government of India and the Government of United States of America for the avoidance of double taxation of income of the international airlines of the two countries and to confirm the text of your letter which reads as follows:--

 

"On November 26, 1976 we exchanged letters concerning a reciprocal airline tax exemption. In this connection the text of the U.S. Note does not make a specific reference to the aircraft registration requirement contained in section 872(b)(2) and 883(a)(2) of the U.S. Internal Revenue Code of 1954, as amended, though it had been intended that these requirements be covered by the Note."

 

"For this reason we wish, by this letter to confirm the U.S. statutory requirement that the aircraft, income from the operation of which is exempt from U.S. income-tax be registered in India, which grants an equivalent exemption to U.S. corporations and to U.S. citizens non-resident in India, in respect of income from the operation of aircraft registered in the United States."

 

"I would be most grateful if you would kindly confirm this letter so as to meet the statutory requirement of the U.S. Internal Code."

 

Yours sincerely

 

Sd./-

 

(S.R. Mehta)

 

H.E. Mr. David T. Schneider,

 

Charge d' Affaires ad interim,

 

Embassy of the U.S.A.

 

New Delhi

 

UNITED STATES OF AMERICA

 

Agreement between India and the U.S.A. for the avoidance of double taxation of income of enterprises operating ships and aircrafts

 

Notification No. 8391 [F. No. 501/3/86-FTD], dated 15th June, 1989

 

G.S.R. 626(E).--Whereas the annexed Agreement through exchange of letters between the Government of India and the Government of the United States of America for the avoidance of double taxation of income of enterprises operating ships and aircraft has entered into force on the 12th April, 1989, the date of signature thereon by the Contracting States;

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India.

 

ANNEXURE

 

Embassy of the United States of

 

America, New Delhi

 

April 12,1989

 

Excellency,

 

I have the honour to propose that the Government of the United States of America and the Government of India conclude an Agreement to exempt from income-tax, on a reciprocal basis, income derived by residents of the other country from the international operation of ships and aircraft. The terms of the Agreement are as follows:

 

The Government of the United States of America, in accordance with sections 872(b) and 883(a) of the Internal Revenue Code, agrees to exempt from tax gross income derived from the international operation of ships or aircraft by individuals who are residents of India (other than U.S. citizens) and corporations organized in India. This exemption is granted on the basis of equivalent exemptions granted by India to citizens of the United States (who are not residents of India) and to corporations organised in the United States (which are not subject to tax by India on the basis of residence).

 

In the case of a corporation, the exemption shall apply only if the corporation meets either of the following conditions:

 

(1) more than 50 per cent of the value of the corporation's stock is owned, directly or indirectly by individuals who are residents of India or of another country which grants a reciprocal exemption to U.S. citizens and corporations; or

 

(2) the corporation's stock is primarily and regularly traded on an established securities market in India or is wholly owned by a corporation whose stock is so traded and which is also organized in India.

 

For purposes of sub-paragraph (1), the Government of India will be treated as an individual resident of India. For purposes of the exemption from U.S. tax, sub-paragraph (1) will be considered to be satisfied if the corporation is a "controlled foreign corporation" under the Internal Revenue Code.

 

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis.  It also includes income from the rental on a bareboat basis of ships and aircraft used in international transport, income from the rental of containers and related equipment used in international transport, and gain on the disposition of ships or aircraft, provided in each case that the income is incidental to the international operation of ships or aircraft. Gross income from the international operation of ships or aircraft also includes income derived from participation in a pool, a joint business, or an international operating agency and interest on funds connected with the international operation of ships or aircraft.

 

The Government of the United States of America considers that this Note, together with your Reply Note confirming that the Government of India agrees to these terms, constitutes an Agreement amending the agreement of November 26, 1976 and the exchange of letters of December 27 and 29, 1976. This Agreement shall enter into force on the date of your Reply Note and shall have effect with respect to taxable years beginning on or after January, 1, 1987.

 

Either Government may terminate this agreement by giving written notice of termination through diplomatic channels.

 

I avail myself of this opportunity to renew to your Excellency the assurances of my highest consideration.

 

John R. Hubbard

 

Ambassador

 

His Excellency

 

Dr. N.K. Sengupta

 

Secretary (Revenue)

 

Ministry of Finance

 

Government of India.

 

Government of India,

 

Ministry of Finance,

 

Department of Revenue,

 

New Delhi

 

April 12, 1989

 

Excellency,

 

I have the honour to acknowledge receipt of your Note of today's date proposing the terms of a reciprocal exemption from income-tax of income derived from the international operation of ships and aircraft.

 

The Government of India agrees to exempt from income-tax gross income derived from the international operation of ships or aircraft by U. S. citizens (who are not residents of India) and corporations organized in the United States (other than corporations which are subject to tax by India on the basis of residence).

 

In the case of a corporation, the exemption shall apply only if the corporation meets either of the following conditions.--

 

(1) more than 50 per cent of the value of the corporation's stock is owned, directly or indirectly, by individuals who are citizens of the United States or residents of another country which grants a reciprocal exemption to Indian residents and corporation; or

 

(2) the corporation's stock is primarily and regularly traded on an established securities market in the United States, or is wholly owned by a corporation whose stock is so traded and which is also organized in the United States.

 

Gross income includes all income derived from the international operation of ships or aircraft, including income from the rental of ships or aircraft on a full (time or voyage) basis. It also includes income from the rental on a bareboat basis of ships and aircraft used in international transport, income from the rental of containers and related equipment used in international transport, and gain on the disposition of ships or aircraft, provided in each case that the income is incidental to the international operation of ships or aircraft. Gross income from the international operation of ships or aircraft also includes income derived from participation in a pool, a joint business or an international operating agency and interest on funds connected with the international operation of ships or aircraft.

 

I am pleased to confirm that Your Excellency's Note and this Reply Note constitute an agreement between the two Governments amending the Agreement of November 26, 1976, and the exchange of letters of December 27 and 29, 1976. This Agreement shall enter into force on today's date and shall have effect with respect to previous years beginning on or after January 1, 1987.

 

Either Government may terminate this Agreement by giving written notice of termination through diplomatic channels.

 

I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration.

 

N.K. Sengupta

 

Secretary (Revenue)

 

His Excellency

 

DR. John R. Hubbard

 

Ambassador

 

United States Embassy

 

New Delhi.

 

 

 

UZBEKISTAN

 

Agreement between the Government of the Republic of India and the Government of the Republic of Uzbekistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on Income and on Capital

 

Notification No. 10222 [F. No. 501/8/92-FTD], dated 13-11-1996

 

Whereas the annexed Agreement between the Government of the Republic of India and the Government of the Republic of Uzbekistan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital has entered into force on the 25th January, 1994 on the notification by both the Contracting States to each other of the completion of the procedures required under their laws for the bringing into force of the said Agreement in accordance with Article 30 of the said Agreement.

 

Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 44A of the Wealth-tax Act, 1957 (27 of 1957), the Central Government hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India.

 

The Government of the Republic of India and the Government of the Republic of Uzbekistan, Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital:

 

Have Agreed as follows:

 

Article 1

Personal scope

 

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

 

Article 2

Taxes covered

 

1. The taxes to which this Agreement shall apply are:

 

(a)        in Uzbekistan:

 

(i)         the taxes on profit;

            (ii)        the wealth-tax;

            (iii)       the income-tax on legal persons as well as individuals;

 

(hereinafter referred to as "Uzbekistan tax")

 

(b)        in India:

 

(i)         the income-tax including any surcharge thereon;

            (ii)        the wealth-tax;

 

(hereinafter referred to as "Indian tax")

 

2. The present Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws.

 

Article 3

 

General definitions

 

1. In this Agreement, unless the context otherwise requires:

 

(a)        the term "India" means the territory of India and includes the territorial sea and airspace above it, and other maritime zones in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with International Law;

 

(b)        the term "Uzbekistan" means in geographical sense land, territorial waters, and other zones in which Uzbekistan has sovereign rights, other rights and jurisdictions, according to the International Law and tax laws of the Republic of Uzbekistan;

 

(c)        the terms "Contracting State" and "the other Contracting State" mean Uzbekistan or India as the context requires;

 

(d)        the term "company" means any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective Contracting States;

 

(e)        the term "competent authority" means in the case of Uzbekistan, Central State Taxation Board; and in the case of India, the Central Government in the Ministry of Finance (Department of Revenue) or their authorized representative;

 

(f)        the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and enterprise carried on by a resident of the other Contracting State;

 

(g)        the term "fiscal year" means:

 

(i)         in the case of Uzbekistan, calender year from 1 of January to 31 of December of the year under review,

            (ii)        in the case of India, "previous year" as defined under section 3 of the Income-tax Act, 1961;

 

(h)        the term "international traffic" means any transport by a ship, aircraft or motor vehicles operated by an enterprise of a Contracting State except when the ship, aircraft or motor vehicle is operated solely between places in the other Contracting State;

 

(i)         the term "national" means, any individual possessing the nationality of a Contracting State and any legal person, partnership or association deriving its status from the laws in force in the Contracting State;

 

(j)         the term "person" includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States;

 

(k)       the term "tax" means Indian tax or Uzbekistan tax as the context requires, but shall not include any amount which is payable is respect of any default or omission in relation to the taxes to which this Agreement applies or which represents a penalty imposed relating to those taxes.

 

2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Agreement applies.

 

Article 4

 

Resident

 

1. For the purposes of this Agreement the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

 

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States then his status shall be determined as follows:

 

(a)        he shall be deemed to be a resident of that State in which he has a permanent home available to him; if he has a permanent home available to him in both States; he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests);

 

(b)        if the State, in which he has his center of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

 

(c)        if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

 

(d)        if he is a national of both States or of neither of them, the competent authorities of the Contracting State shall settle the question by mutual agreement.

 

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then he shall be deemed to be a resident of the State in which his place of effective management is situated.

 

Article 5

 

Permanent establishment

 

1. For the purposes of this Agreement the term "permanent establishment" means a fixed place of business, through which the business of the enterprise is wholly or partly carried on.

 

2. The term "permanent establishment" includes especially:

 

(a)        a place of management;

            (b)        a branch;

            (c)        an office;

            (d)        a factory;

            (e)        a workshop;

            (f)        a mine, an oil or gas well, quarry or any other place of extraction of natural resources;

(g)        a building site or a construction or an assembly project or supervisory activities in connection therewith; but only where such site, project or activity continues for a period of more than twelve months.

 

3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:

 

(a)        the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

 

(b)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

 

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

 

(d)        the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

 

(e)        the maintenance of a fixed place of business solely for the purpose of carrying on for the enterprise, any other activity of a preparatory or auxiliary character.

 

4. Notwithstanding the provisions of paragraphs 1 and 2, where a person -- other than an agent of independent status to whom paragraph 5 applies is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 3 of this Article, which if exercised through a fixed place of business would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

 

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

 

6. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company, which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

 

Article 6

 

Income from immovable property

 

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

 

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships, boats and aircraft shall not be regarded as immovable property.

 

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

 

Article 7

 

Business profits

 

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of an enterprise may be taxed in the other State but only so much of them as is attributable directly or indirectly to that permanent establishment.

 

The words "directly or indirectly" mean, for the purposes of this Article, that where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then notwithstanding that other parts of the enterprise have also participated in those transactions, there shall be attributed to the permanent establishment that proportion of profits of the enterprise arising out of those contracts as the contribution of the permanent establishment to those transactions bears to that of the enterprise as a whole.

 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

 

3. In determining the profits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere in accordance with the provisions of and subject to the limitations of the tax laws of that State.

 

4. In so far as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary, the method of apportionment adopted shall however, be such that the result shall be in accordance with the principles contained in this Article.

 

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

 

6. For the purposes of the preceding paragraph, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

 

7. Where profits include item of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

 

Article 8

 

Shipping, air and motor transport

 

1. Profits derived by an enterprise of a Contracting State derived from operation of aircraft or motor vehicles in international traffic shall be taxable only in that State.

 

2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

 

3. For the purposes of this Article, interest on funds connected with the operation of aircraft or motor vehicles in international traffic shall be regarded as profits derived from the operation of such aircraft or motor vehicles, and the provisions of Article 11 shall not apply in relation to such interest.

 

4. The term "operation of aircraft" shall mean business of transportation by air of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft and any other activity directly connected with such transportation.

 

5. Profits derived by an enterprise from operation of ships shall be taxable in the Contracting States in accordance with their domestic laws.

 

Article 9

 

Associated enterprises

 

Where

 

(a)        an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

 

(b)        the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

 

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

 

Article 10

 

Dividends

 

1. Dividends, paid by a company, which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 15% of gross amount of the dividends.

 

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

 

3. The term "dividends" as used in this Article means income from shares or from other rights, not being debt-claims participating in profits as well as the income from other corporate rights, which is subjected to the same taxation treatment as income from shares by the laws of State of which the company making the distribution is a resident.

 

4. Provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7, or Article 15, as the case may be, shall apply.

 

5. Where a company which is a resident of a Contracting State, derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company except in so far as such dividends are paid to a resident of that other State or in so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, not subject the company's undistributed profits to a tax on the company's undistributed profits even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

 

Article 11

 

Interest

 

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State, may be taxed in that other State.

 

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest.

 

3. Notwithstanding the provisions of paragraph 2,

 

(a)        interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by:

 

(i)         the Government, a political sub-division or a local authority of the other Contracting State; or

            (ii)        the Central Bank of the other Contracting State;

 

(b)        interest arising in a Contracting State shall be exempt from tax in that Contracting State to the extent approved by the Government of that State if it is derived and beneficially owned by any person other than a person referred to in sub-paragraph (a) who is a resident of the other Contracting State provided that the transaction giving rise to the debt-claim has been approved in this regard by the Government of the first-mentioned Contracting State.

 

4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

 

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest being a resident of a Contracting State carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein and the debt-claim in respect of which the interest is paid effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply.

 

6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness in which the interest is paid was incurred and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

 

7. Where, by reason of a special relationship between payer and the beneficial owner or between both of them and some other person, the amount of interest having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner, in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

 

Article 12

 

Royalties

 

1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 15 per cent of gross amount of royalties.

 

3. The term "royalties" as used in this article means payments of any kind, received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

 

4. The provisions of paragraphs 1 and 2 shall not apply, if the beneficial owner of the royalties being a resident of a Contracting State carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or Article 15, as the case may be, shall apply.

 

5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties whether he is a resident of a Contracting State or not has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

 

6. Where, by reason of a special relationship between payer and the beneficial owner or between both of them and some other person, the amount of royalties, having regard to the use, right or information, for which they are paid, exceeds the amount which would have been agreed upon by payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payment shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

 

Article 13

 

Technical fees

 

1. Technical fees arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

2. However, such technical fees may also be taxed in the Contracting State in which they arise, and according to the laws of that State; but if the recipient is the beneficial owner of the technical fees, the tax so charged shall not exceed 15 per cent of the gross amount of the technical fees.

 

3. The term "technical fees" as used in this Article means payments of any kind to any person other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature.

 

4. The provisions of paragraphs 1 and 2 shall not apply, if the beneficial owner of the technical fees being a resident of a Contracting State carries on business in the other Contracting State in which the technical fees arise through a permanent establishment situated therein, or performs in that other State independent personal services and the technical fees are effectively connected with such permanent establishment or such services. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply.

 

5. Technical fees shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a statutory body thereof, or a resident of that State. Where, however, the person paying the technical fees whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the technical fees was incurred and such technical fees are borne by that permanent establishment or fixed base then such technical fees shall be deemed to arise in the Contracting State in which permanent establishment is situated.

 

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person the amount of the technical fees paid, exceeds for whatever reason, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payment shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

 

Article 14

 

Capital gains

 

1. Gains derived by a resident of a Contracting State from the alienation of immovable property, referred to in Article 6 and situated in the other Contracting State may be taxed in that other Contracting State.

 

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment, which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purposes of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

 

3. Gains from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State of which alienator is a resident.

 

4. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.

 

5. Gains from the alienation of shares, other than those mentioned in paragraph 4, in a company which is a resident of a Contracting State may be taxed in that State.

 

6. Gains from the alienation of any property, other than that mentioned in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.

 

Article 15

 

Independent personal services

 

1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State:

 

(a)        if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or

 

(b)        if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant fiscal year; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

 

2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists, accountants and other such professions.

 

Article 16

 

Dependent personal services

 

1. Subject to the provisions of Articles 17, 18, 19, 20, 21 and 22, salaries, wages and other similar remuneration, derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other States.

 

2. Notwithstanding the provisions of paragraph 2, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

 

(a)        the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in the relevant fiscal year; and

 

(b)        the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State; and

 

(c)        the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Contracting State.

 

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.

 

Article 17

 

Director's fees

 

Director's fees and similar payments, derived by a resident of a Contracting State in his capacity as a member of the Board of Directors of a company, which is a resident of the other Contracting State, may be taxed in that other State.

 

Article 18

 

Income earned by entertainers and sportspersons

 

1. Notwithstanding the provisions of Articles 15 and 16, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artists, or a musician, or as a sportsperson, from the personal activities as such exercised in the other Contracting State, may be taxed in that other State.

 

2. Where income in respect of personal activities exercised by an entertainer or sportsperson in his capacity as such accrues not to the entertainer or sportsperson himself but to another person, that income may, notwithstanding the provisions of Articles 7, 15 and 16, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

 

3. Notwithstanding the provisions of paragraph 1, income derived by an entertainer or a sportsperson who is a resident of a Contracting State from his personal activities as such exercised in the other Contracting State shall be taxable only in the first-mentioned Contracting State, if the activities in the other Contracting State are supported wholly or substantially from the public funds of the first-mentioned Contracting State, including any of its political sub-division or a local authorities.

 

4. Notwithstanding the provisions of paragraph 2 and Articles 7, 15 and 16, where income in respect of personal activities exercised by an entertainer or a sportsperson in his capacity as such in a Contracting State accrues not to the entertainer or sportsperson himself but to another person, that income shall be taxable only in the other Contracting State, if that other person is supported wholly or substantially from the public funds of that other State, including any of its political sub-division or local authorities.

 

Article 19

 

Remuneration and pensions in respect of Government service

 

1. (a) Remuneration, other than a pension, paid by a Contracting State or a political sub-division, or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State.

 

(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that State who:

 

(i)         is a national of that State; or

            (ii)        did not become a resident of that State solely for the purpose of rendering the services.

 

2. (a) Any pension paid by, or out of funds created by, a Contracting State or political sub-division, or a local authority thereof to any individual in respect of services rendered to that State or sub-division or local authority thereof shall be taxable only in that State.

 

(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of and a national of that other State.

 

3. The provisions of Articles 16, 17 and 18 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political sub-division or a local authority thereof, income shall be taxable only in the other Contracting State, if that other person is supported wholly or substantially from the public funds of that other State, including any of its political sub-division or local authorities.

 

Article 20

 

Non-Government pensions and annuities

 

1. Any pension, other than a pension referred to in Article 19, or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first mentioned Contracting State.

 

2. The term "pension" means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.

 

3. The term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time, under an obligation make the payments in return for, adequate and full consideration in money's worth.

 

Article 21

 

Payments received by students and apprentices

 

1. A student or business apprentice who is or was a resident of a Contracting State immediately before visiting the other Contracting State and who is present in that other Contracting State solely for the purpose of his education or training shall be exempt from tax in that other State on:

 

(a)        payments made to him by persons residing outside that other State for the purposes of his maintenance, education or training; and

(b)        remuneration from employment in that other State, in an amount not exceeding US $ 700 or its equivalent amount during any fiscal year,

 

as that case may be, provided that such employment is directly related to his studies or is undertaken for the purpose of his maintenance.

 

2. The benefits of this Article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken, but in no event shall any individual have the benefits of this Article for more than three consecutive years from the date of his first arrival in that other Contracting State.

 

Article 22

 

Payments received by professors, teachers and research scholars

 

1. A professor or teacher who is or was a resident of the Contracting State immediately before visiting the other Contracting State for the purpose of teaching or engaging in research, or both, at a university, college, school or other approved institution in that other Contracting State shall be exempt from tax in that other State on any remuneration for such teaching or research for a period not exceeding two years from the date of his arrival in that other State.

 

2. This Article shall not supply to income from research, if such research is undertaken primarily for the private benefit of a specific person or persons.

 

3. For the purposes of this Article and Article 21, an individual shall be deemed to be a resident of a Contracting State if he is resident in that State or in the immediately preceding fiscal year.

 

4. For the purposes of paragraph 1 "approved institution" means an institution which has been approved in this regard by the competent authority of the concerned Contracting State.

 

Article 23

 

Other income

 

1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement, shall be taxable only in that Contracting State.

 

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income being a resident of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right of property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or Article 15, as the case may be, shall apply.

 

3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Agreement and arising in the other Contracting State may also be taxed in that other Contracting State.

 

Article 24

 

Capital

 

1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

 

2. Capital represented by movable property, forming part of the business property of a permanent establishment, which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services may be taxed in that other State.

 

3. Capital represented by ships, aircraft or motor vehicle operated in international traffic and by movable property pertaining to the operation of such ships, aircraft or motor vehicles, shall be taxable only in the Contracting State of which the enterprise owning such property is a resident.

 

4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

 

Article 25

 

Avoidance of double taxation

 

1. The laws in force in either of the Contracting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement.

 

2. Where a resident of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in Uzbekistan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in Uzbekistan, whether directly or by deduction; and as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in Uzbekistan. Such deduction in either case shall not, however, exceed that part of income-tax or tax on capital (as paid before the deduction is given), which is attributable to the income or the capital which may be taxed in Uzbekistan.

 

3. In the case of Uzbekistan the double taxation shall be avoided by a method which is identical to that mentioned in paragraph 2.

 

4. The tax payable in the Contracting State mentioned in paragraphs 2 and 3 of this Article shall be deemed to include the tax which would have been payable but for the tax incentives granted under the laws of the Contracting State and which are designed to promote economic development.

 

5. Income which in accordance with the provisions of this Agreement, is not to be subjected to tax in a Contracting State, may be taken into account for calculating the rate of tax to be imposed in that Contracting State.

 

Article 26

 

Non-discrimination

 

1. The national of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

 

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprise of that other State carrying on the same activities in the same circumstances. This provision shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first mentioned Contracting State at a rate higher than that imposed on the profits of a similar enterprise of the first mentioned State, nor as being in conflict with the provisions of paragraph 3 of Article 7 of this Agreement.

 

3. Nothing contained in this Article shall be construed as obliging a Contracting State to grant to persons not resident in that State any personal allowances, reliefs, reductions and deductions for taxation purposes which are by law available only to persons who are so resident.

 

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first mentioned State are or may be subjected in the same circumstances.

 

5. In this Article, the term "taxation" means taxes which are the subject of this Agreement.

 

Article 27

 

Mutual Agreement Procedure

 

1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Agreement, he may notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the State of which he is a resident. The case must be presented within three years from the date of receipt of the first notice of the action resulting in taxation not in accordance with the provisions of the Agreement.

 

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Agreement. Any agreement reached shall be implemented notwithstanding any time limits in the national laws of the Contracting State.

 

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement.

 

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a Commission consisting of representatives of the competent authorities of the Contracting States.

 

Article 28

 

Exchange of information

 

1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of the Agreement or of the domestic laws of the Contracting States concerning taxes covered by the Agreement insofar as the taxation thereunder is not contrary to the Agreement, in particular for the prevention of fraud or evasion of such taxes. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State. However if the information is originally regarded as secret in the transmitting State, it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings in judicial decisions. The competent authorities shall through consultation, develop appropriate conditions, methods and techniques concerning the matter in respect of which such exchange of information shall be made, including, which appropriate, exchange of information regarding tax avoidance.

 

2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases or both. The competent authorities of the Contracting States shall agree from time to time on the list of the information or documents which shall be furnished on a routine basis.

 

3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

 

(a)        to carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State;

 

(b)        to supply information or documents which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

 

(c)        to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process or information, the disclosure of which would be contrary to public policy.

 

Article 29

 

Diplomatic and consular activities

 

Nothing in this Agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

 

Article 30

 

Entry into force

 

Each of Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Agreement. This Agreement shall enter into force on the date of the later of these notifications and shall thereupon have effect:

 

(a)        In India: in respect of income arising in any previous year beginning on or after the 1st April, 1993 and in respect of capital which is held at the expiry of any previous year beginning on or after 1st April, 1993;

 

(b)        In Uzbekistan: in respect of income arising in any year of income beginning on or after the 1st January, 1993 and in respect of capital which is held at the expiry of any year of income beginning on or after 1st January, 1993.

 

Article 31

 

Termination

 

This Agreement shall remain in force indefinitely but either of the Contracting States may, on or before 30th June in any calender year beginning after the expiration of a period of five years from the date of its entry into force, give the other Contracting State through Diplomatic Channels, written notice of termination and, in such event, this Agreement shall cease to have effect:

 

(a)        In India: in respect of income arising in any previous year beginning on or after the 1st April next following the calender year in which the notice is given and in respect of capital which is held at the expiry of any previous year beginning on or after 1st April next following the calender year in which the notice of termination is given;

 

(b)        In Uzbekistan: in respect of income arising in any year of income beginning on or after the 1st January next following the calender year in which the notice is given and in respect of capital which is held at the expiry of any year of income next following the calender year in which the notice of termination is given.

 

IN WITNESS WHEREOF the undersigned, being duly authorized thereto, have signed the present Agreement.

 

DONE at New Delhi in duplicate this 29th day of July One thousand nine hundred and ninety-three in Hindi, Uzbek and English languages, all the texts being equally authentic. In case of divergence between any of the texts, the English text shall be the operative one.